Estate Planning Mistakes

An estate plan outlines how your wealth and assets will be preserved, managed and allocated in the event of death or incapacitation. More importantly, it’s a way to ensure that your loved ones are cared for and your wishes are honoured after you’re gone. While it may be difficult to think about, creating an estate plan is essential if you want to leave everything – and everyone – taken care of, just as you intend.

The death of a loved one is stressful and emotional at the best of times, let alone if an estate plan hasn’t been prepared or is riddled with oversights. So, in an effort to avoid your will going awry, our Melbourne financial planners have prepared this list—in no particular priority—of estate planning pitfalls to avoid. 

1. Not Having an Estate Plan 

Saving it for a rainy day, waiting until you’re older, thinking you don’t need one because it’s all pretty straightforward; the number one estate planning mistake is having no plan at all. If you do this, you throw your next of kin into a stressful and chaotic time. They will likely have to apply to the Supreme Court for a Grant of Letters of Administration. 

Typically, any assets will be used to pay outstanding bills and funeral expenses. Anything that remains will be distributed depending on your family status. Contrary to popular belief, your assets don’t go to the government. The order of family member priority is partner, children, parents, siblings, grandparents and cousins.

2. Failing to Update Your Will

This is not a legally binding document you can set and forget. Life moves on, assets come and go, wealth distribution shifts, children and grandchildren are born, marriage statuses change, and people around you sadly pass away. Your financial and life status will likely look very different now compared to five years later. As such, it’s important to ‘regularly’ review your will and make changes accordingly.

3. Failing to Develop a Tax Reduction Strategy

This next point illustrates the need to keep your will updated. Let’s say you finalise an estate plan while your children are still young. As beneficiaries, they are deemed dependents and, therefore, receive any bequests tax-free. That changes the moment they turn 18. 

Let’s assume you’ve saved as much of your superannuation fund as possible so you can hand it down to your children when you pass. Thanks to Australian life expectancy, this is unlikely to happen until the kids are well into adulthood and, therefore, no longer classed as tax-free. This has major consequences on your super, as it means the government can take up to 32% of the pot you had intended for them. In contrast, your spouse remains tax-free right the way through. 

A re-contribution superannuation strategy could be a very savvy move that saves your dependents significant heartache. Contact our financial advisors in Melbourne to find out more. 

4. Not Considering Insurance

While we’re on the subject of taxes, one of the most common mistakes in estate planning is to forget about life insurance. Your estate plan can use an insurance payout to honour any debts, pay off taxes and even avoid the forced sale of assets. We’re big believers in risk protection, so contact our team to learn more. 

5. Not Having a Valid Binding Death Benefit Nomination

We’ve all experienced those ridiculous situations where, for example, you ring your electricity company to enquire about your bill. They can’t speak to you because your spouse is the only name linked to the account. Imagine how amplified that situation becomes if we’re talking about hundreds of thousands of dollars in your superannuation fund. 

A valid Binding Death Benefit Nomination, or BDBF, is a written direction from you to a Trustee advising them of your nominated beneficiaries. It becomes a legal requirement for the Trustee to pay your death benefit to whomever you have nominated. If you don’t have this in place, things can become tricky for your beneficiaries, regardless of what you’ve outlined in your actual will. 

6. Forgetting About Certain Assets

Sounds like a good problem to have, right? So many assets, or so much value in assets, that you haven’t kept a handle on them all. Typically, most of us are good at listing tangible assets. Property, cars, art, and jewellery are usually high-value items you see and that stay top-of-mind. But what about the financial assets? Shares, bonds, cryptocurrency, money overseas; it’s often easy to overlook things not in front of you. 

Contact Us About Estate Planning in Australia

If this list of common estate planning mistakes has got you thinking, we’re all ears. Our team of Melbourne financial advisors is here to help get your financial affairs in order. We can also recommend excellent estate planning lawyers. Contact us for a no-cost, no-obligation meeting today.