What Is Estate Planning? The Ultimate Guide

You must be diligent with the details to ensure your loved ones receive the financial and practical care you would like to provide after your death. Estate planning begins with drawing up the documents that outline these legal directives, and it’s recommended you seek professional advice to ensure these remain legally binding. Here are the steps to start this process:

Create a Will

Anyone over the age of 18, who is considered to be sound of mind, can prepare a will. A will is the core document in estate planning which outlines how you want your assets to be divided up among loved ones, charities and other organisations. But it also stipulates who will be guardian to your children or other dependents that require care after your passing, as well as any specific funeral and burial arrangements you’d like made.

To be validated, a will must be a physical written document signed by yourself and two witnesses who are also present while you add your signature.

There are different government bodies that oversee estate planning in each state and territory of Australia. Their job is to ensure your wishes are carried out after your death by managing contests to wills or handling your estate if you pass away without preparing a will. These state-based groups are usually called the ‘Public Trustee’ and each may have slightly different legal powers and requirements. Find your relevant state body here:

• ACT
• NSW
• Vic­to­ria
• Queens­land
• South Australia
• Western Australia
• Tas­ma­nia
• Northern Territory

Your Public Trustee can help you prepare a will (this is sometimes a free option for pensioners) or you can enlist legal services. Both these will preparation options can be costly, ranging from a few hundred dollars for basic wills and into the thousands if your estate is more complex. Alternatively, you can prepare a will yourself or use much cheaper will kits offered by numerous businesses and nonprofits.

It’s easy for holes to appear in your will if you don’t have it checked by a legal professional. If you’re taking the DIY will route, be sure to thoroughly research what’s required for a valid will in your state or territory.

Nominate Will Beneficiaries and Executors

Will beneficiaries are the people or groups you choose to inherit your assets. You can list numerous beneficiaries on your will, and detail exactly which items or benefits you’d like them to receive. If you don’t nominate beneficiaries for some assets these will generally be inherited by your next of kin (starting with a spouse, then immediate family), but this could be contested by other parties.

If you have children under 18 or other dependents, you should also outline the guardians you would like to take over their care. This arrangement should be discussed before being included in your will, as a guardian will become legally and financially responsible for the welfare of your dependents when you pass away, and there could be additional financial support or organise as part of your estate. Appointing a guardian in your will can help loved ones avoid going to court over the custody of children.

An executor of a will steer the ship of your estate after your passing. This is a significant and essential role in any estate, so an executor should be a trustworthy individual who can remain independent from any disputes that may arise.

This person will need to apply for a grant of probate from the supreme court of your state or territory. Obtaining this legal document usually comes with a filing fee that’s dependent on the size of your estate, as well as other legal fees payable to your lawyer. For example, in NSW it’s free to file for probate if the estate assets are worth less than $100,000, but can cost up to $5,996 for estates valued at more than $5,000,000.nYou may choose for the Public Trustee of your state or territory to act as the executor of your will, but this will come with management fees.

Will executors are responsible for registering your death, settling any debts you hold using the assets of your estate (ensuring any assets are sold for a fair market price), and then distributing remaining assets to beneficiaries. Executors must also protect your personal belongings, and be prepared to be an intermediary in any disputes over the will.

Draw up a List of Estate Assets

In addition to your will, you should organise a separate document that lists out all of your assets which will be distributed as part of your estate. You should store this safely and ensure your will executor has a copy or knows how to access it.

Common estate assets include:

• Property or land you own as an individual (which may have a mortgage attached)
• Valuables (like jewellery, artworks, collectible items and cars) and other belongings
• Cash and bank deposits
• Debts and loans
• Business assets (if you own a business)
• Shares and stocks
• Items like intellectual property, royalties, patents and copyrights

It’s important to remember not every asset you hold belongs on this list. In Australia, any funds you hold in superannuation at the time of your death are managed by the trustee of your fund. You’ll need to nominate super beneficiaries separately to your will.

Similarly, most life insurance companies will ask you to nominate beneficiaries who will receive the payments outlined in your policy upon your death. If you hold a policy without nominated beneficiaries, the benefit may pass to those named in your will.

Things get more complicated with jointly owned assets. For example, if you and your partner own the property you live in together, this asset will be passed onto them as the surviving tenant. Similarly, if you own a business jointly, shared assets in this business can’t be distributed via your estate. However, any shares you hold in the company can be passed on to your listed beneficiaries.

Nominate Power of Attorney

You may choose to nominate a power of attorney while you’re preparing your will. This is a separate legal document which allows you to appoint a person or numerous people to manage financial and legal decisions on your behalf while you’re alive.

If you choose an ‘enduring power of attorney’, they can continue to make decisions for you if you’re unable to do so yourself (for example, if you fall into a coma). Otherwise, a ‘general power of attorney’ can only act on your behalf while you’re able to make your own decisions.

Nominating a power of attorney isn’t an essential component of your will. But since an attorney is legally required to act in your best interest, appointing a trusted person to this role can help ensure your affairs are managed as you’d like them to be if you become incapacitated before your death.

Draw up a Medical or Health Care Directive

A medical care directive is often known as an advanced care directive or a living will. It is a formalised document that outlines your preferences on medical, health and lifestyle choices. This can help your loved ones make decisions about your care if you become injured or disabled and can’t communicate with them or act on your own behalf.

In some cases, you may want to specifically appoint a spouse, trusted friend or relative to make these decisions about your wellbeing based on your medical directive. This is known as an ‘enduring guardianship’ and must be agreed to by both parties and outlined in a signed and witnessed document. An enduring guardian’s decision-making power doesn’t relate to your finances or other details in your will.

Medical care directives differ between the states and territories – find details and forms for your state via Advanced Care Planning Australia.

A testamentary trust (sometimes called a ‘will trust’) can be created when you draft your will. This creates a trust administered by someone you appoint (a ‘trustee’) to control the distribution of your assets to your beneficiaries.

You might consider organising a testamentary trust if:

• You want to protect your assets for future generations. Your beneficiaries can still reap the benefits of assets like investments and functioning companies, while the trustee controls how they’re managed. This helps protect the assets from potential legal action and any financially risky activities beneficiaries may be involved in that could impact it.
• You have a blended or complex family structure. People in de facto relationships, those with step children or children from numerous partners can benefit from the flexibility of a testamentary trust. The trustee can organise numerous scenarios to ensure the relevant beneficiaries can access assets in the trust if others pass away, or preserve assets.
• You want to protect vulnerable beneficiaries. If you have loved ones listed as beneficiaries on your will with intellectual disabilities, illnesses, addiction problems, gambling or other issues, a trust can ensure they don’t lose this inheritance to creditors or other vulnerabilities. Similarly, if you have young children benefiting from your estate, a trust can hold assets or ensure they’re managed properly by the family until the children are able to do so themselves.
• You would like to minimise tax liability. Depending on the value and type of assets you hold, a testamentary trust can provide tax benefits for your beneficiaries.

Life insurance is a part of estate planning that you likely already have covered in some capacity. While some inclusions in these policies can help cover your living costs in case you’re injured and are unable to work (income protection) or if you become permanently disabled (TPD cover), the most common form of life insurance is life cover.

Life cover (sometimes referred to bleakly as ‘death cover’) provides a payout to your nominated beneficiaries when you pass away. The amount they receive is dependent on what you’ve agreed to in your policy, but broadly speaking, larger payouts come at a higher premium. An insurance policy is not part of a will, and this lump-sum payment is not included in your estate. The beneficiaries may be the same in each, but you’ll need to select them separately.
People generally take out life cover when they have children or start caring for other dependents, or when they take on significant debt (like a mortgage or business loan). This can help your family or business partners cover living costs if you’re no longer able to support them, as well as costs related to your death.

You can purchase life insurance directly via independent insurance providers, have your financial advisor purchase it on your behalf, or stick with the automatic cover superannuation funds provide. Coverage, premiums, payouts and age limits differ between standalone life insurance (often called ‘direct insurance’) and cover through super, and will vary from provider to provider. Be sure to read the product disclosure statement (PDS) of each policy to ensure it’s the right option for you.

Who Needs Life Insurance?

The main reason someone would take out a life insurance policy is to financially protect their loved ones after they die. There are some circumstances where this need may be greater than others. For example, if you’re a debt-free single person and have no children or loved ones who depend on you financially, you likely don’t need life insurance. People over a certain age also may not be eligible to take out many life insurance policies.

If your personal circumstances do fit into the following categories, you may want to consider purchasing life insurance.

• You are an essential income provider for your family.
• You are a divorced caregiver and now pay child support.
• You are the primary caregiver for your children while your partner goes to work, or the sole parent.
• You are the caregiver for a person with disabilities that’s financially dependent on you.
• You are paying off a home loan or other major debts.
• You own a small business (or part of one).
• You want to cover costs related to your death like a funeral, burial, or managing your belongings.

Life Insurance Through Super vs Standalone Policies

When you open a superannuation account, life insurance is usually an automatic inclusion. Like standalone policies, this can include income protection, total and permanent disability cover (TPD), and life cover. You can usually opt out of some or all of these via your super, and the premium you’re charged (which comes directly out of the funds in your super account) will change accordingly. Most life cover via super ends at age 70, unlike standalone policies which usually remain in place as long as you pay premiums.

Generally, super-provided life insurance is a cheaper option. While you can usually choose the amount of life cover you want and some other variable factors, it’s usually less customiSable than a standalone policy. Plus, your superannuation fund will only offer insurance through a single provider, so you can’t compare and choose policies.

Since life insurance premiums through super don’t come out of your daily accessible budget, many find this an easier way to pay for cover, especially as the money in your super is taxed lower than the standard marginal tax rate. Most super funds don’t require rigorous health checks when providing life cover, which could also make policies more affordable if you work in a high-risk profession or have medical conditions that make cover inaccessible outside super.

If you’re switching super funds or taking out standalone life insurance for the first time, check what life cover is automatically provided and make sure you’re not paying for both direct and super life cover. Keep in mind that people under the age of 25 or those with super balances less than $6,000 usually won’t be automatically provided with life cover via superannuation.

What to Look For in Life Insurance

Like most insurance policies, life insurance comes with a dictionary of industry-specific jargon and numerous policy documents that you’ll need to understand when taking out a policy. Here a few key elements you’ll need to consider:

• Term: In the life insurance world, ‘term’ refers to the amount of time your policy covers you for (aka the age up to which your beneficiaries will receive payment upon your death). You choose this term when you take out a policy. Many people opt to end cover at retirement age (usually 65-70), but you can choose a longer term to suit you and your family’s needs.
• Benefit indexation: A ‘benefit’ in life insurance is the lump sum payment your nominated beneficiaries will receive upon your death. Benefit or ‘cover indexation’ aligns that payment with the rate of inflation to ensure this amount provides adequate cover years or even decades after you take out the policy. This is particularly important if you take out life cover relatively young.
• Advance benefit payment: Life insurance benefits may not be paid out immediately. If your death is unexpected or you haven’t made arrangements for immediate affairs like a funeral and burial, then an advanced benefit payment can help your loved ones cover those costs. Some policies will include this under specific ‘funeral cover’.
• Stepped vs level premiums: These are the two basic premium calculations. With a stepped premium, what you pay each each increases with your age, while a level premium remains the same. The former will generally be cheaper in the early years you hold a policy, but if you take out cover at a young age under a level premium and hold it for a long time, it will often be more cost-effective. Some insurance providers will allow you to pay for portions of your premium using each method.
• Age limits: With a standalone life insurance policy, you can usually dictate the age you’re covered until so long as you keep paying premiums (with life cover via super, the cut-off is normally 70). However, most providers will have a maximum entry age of 65-70 for when you can first buy cover. Generally speaking, the older you are when you take out cover the more you’ll pay and the fewer tailored options you’ll be offered, as you present a greater risk to the insurer as you age and your health declines.
• Exclusions: Be sure to scour your PDS for any exclusions which may void your cover, like criminal activity, drug or alcohol abuse, or suicide.

The money in your superannuation fund is treated differently to the rest of your assets in your estate. Since it’s managed by the trustee of your fund, it can’t be incorporated into your will.

Similar to your life cover and will, you need to nominate superannuation beneficiaries who will receive these funds if you pass away before they’re spent. You can declare multiple binding and non-binding super beneficiaries.

A binding death benefit nomination is a written declaration you provide to your fund that legally obligates the trustee to give your super to your nominees. These nominations usually need to be validated every three years to remain binding.

A non-binding nomination is a preferred beneficiary selection you make, but the super trustee isn’t bound to. When paying out your remaining super, they will consider your non-binding nominations alongside the rights of other dependants and legal personal representatives.

Trustees must follow super laws in either circumstance. These beneficiary nomination options are made available so you have the opportunity to legally ensure your chosen beneficiary receives payment in case there are conflicting claims after your death.

Once you have all of the above documentation in place, it is essential to review your estate details periodically. It’s worth assessing every three to five years, but is especially important if there are major changes to your estate or if you’d like to add or change listed beneficiaries or the executor of your will.

You should update your will if beneficiaries change their legal names, if they pass away, or if your family dynamics change off the back of divorces, marriages, de facto relationships or new children coming into the family. Similarly, if the assets you hold change—like if you sell or purchase property, get involved in a new business venture or move overseas—you should update your will.

It’s also worth checking in regularly with the executor of your will to ensure they are willing and capable of performing their duties. Updating your will generally comes with a fee, whether you’re using an online service or going through a solicitor. While you can update the document yourself, it’s wise to have it checked by a legal professional who can pick up any issues that may invalidate the will.

If you hold life insurance, you should assess your cover when renewal time rolls around each year. Make sure your cover still adequately protects your loved ones, and take time to compare your policy and its price tag against others in the life insurance market.