When a Will Isn't Enough

Think having a Will in place means your estate plan is taken care of? Here are five examples that might make you think again.

Most people appreciate that having a Will helps you formalise what you’d like to happen to your assets if you pass away.

While there’s no doubt a Will is an important part of the estate planning process, it may not be enough to prevent unfavourable outcomes for your family.

Here we look at five common estate planning mistakes, including some real-life examples of what happens when things go wrong.

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Top 5 estate planning mistakes

1. Having an outdated/invalid Will

Your Will needs to be reviewed and updated regularly to ensure it still accurately reflects your goals. This is particularly important when your family situation changes, as shown in the following example:

Bill had a family trust holding significant assets. After divorcing his wife Marlene, Bill inadvertently left Marlene in the family trust deed as the controller (appointor) of the trust.

When Bill unexpectedly passed away, Marlene was left in control of the family trust. She wound up the trust and transferred the trust assets to herself.

2. Not having a wealth transfer strategy

One of the reasons trust structures are popular for wealth transfer is that they give you greater control over how and when your assets are used. For example:

Jack made a Will following Mark’s birth many years ago. Mark, throughout his adulthood, developed spendthrift habits. When Jack passed away, leaving his estate to Mark as his only son, Mark squandered the estate.

Had Jack established a trust fund in his Will for Mark, appointing a professional and independent trustee to manage and administer the trust fund, Jack’s estate could have been passed on gradually.

3. Not using testamentary trusts

When your beneficiaries are minors, a testamentary tax structure can provide significant tax advantages over a family trust. For example:

Rob and Raelene were a professional couple with four young children. Rob passed away suddenly and didn’t have a Will in place. All assets were held in his name only.

When Rob’s assets were distributed to his children, they had to pay tax at children’s rates. Had Rob made a Will, he could have set up a discretionary testamentary trust, enabling income to be distributed to their four children at the adult rates of tax – creating significant tax savings for the family.

4. Not involving family members

There’s a tendency for people to avoid talking about sensitive topics like wealth transfer with their families, and particularly beneficiaries. The benefit of including your family in these conversations from an early stage can help makes sure well-meaning wishes are carried through.

For example, if you would like one of your children to get involved in the ongoing management of your charitable donations, you need to ensure they are aware of your goals and intentions so they can carry on your legacy as intended.

5. Not looking at the full picture

If you don’t have one professional looking at the complete picture of your estate plan, it increases the chances your assets won’t be distributed evenly. For example:

Mary was a single parent who wished to benefit her three children equally if she passed away, and signed a simple Will accordingly.

When Mary died suddenly, her main asset was her super and she did not have a death benefit nomination in place. One of her children was a financially-independent adult working as an accountant, while the other two were school aged children living at home.

The trustee of the super fund decided to pay the death benefits to Mary’s two school-aged children (to be held on trust), rather than to her deceased estate. This meant that her adult son missed out on receiving any benefit from super, while her two younger children received a greater share of Mary’s overall wealth.

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*Authorised Representative of Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 AFSL 244252

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