It’s estimated that nearly 50% of Australians will die without a Will. For many couples with young families preparing a Will and Enduring Power of Attorney is often placed in the ‘too hard’ basket.
Life is busy, and any spare time is often dedicated to building wealth, saving for a home, or simply enjoying family life. Nobody expects to die or lose capacity (and certainly not during their younger stages of life), but if providing for your family is important to you during your lifetime, then it is also important to have a plan in place for your family in case the ‘what if’s’ come to fruition.
The two biggest misconceptions we come across are:
- Clients who believe that they do not require a Will, as they assume that their spouse will automatically receive everything. Unfortunately, many couples do not realise that if one of them were to pass away without a Will, the legislation in Queensland directs that their surviving spouse will have to split the estate assets with the kids. This can have serious consequences if the surviving spouse was relying on this inheritance to cover daily expenses – such as paying the mortgage.
- Clients who believe that they do not yet own any major assets. If you are working, it is likely that you have significant assets within your Superannuation – usually comprising a considerable life insurance component. If you do not have a binding death benefit nomination in place, you are leaving it to the Superfund trustee’s discretion to determine who receives this money and in what percentages.
With this in mind, we have compiled a checklist of 5 things couples with young families must cover when preparing their Will:
- If both parents were to die at the same time, who will care for your minor children?
Without a current Will in place, there is often uncertainty and confusion between family members as to who is the most appropriate person to care for minor children. Your children are your most precious asset, so it makes sense to legally appoint a guardian of your choosing to care for them, rather than leaving this important decision to a Judge who is unfamiliar with your wishes. When deciding who to name as guardian, consider the personal family situation of that guardian, where they live (remembering that often your children will need to fit into the guardian’s lives, not the other way around), whether their lifestyle, personal and/or religious beliefs reflect your own and how their family dynamics may change when your children are introduced to the mix. We also strongly recommend discussing this with your guardian before naming them in your Will.
- If both parents were to die at the same time, who will manage your children’s inheritance?
Without a Will, your children’s inheritance will, in most cases, be controlled by their guardian. Although you may trust the guardian with day-to-day care of your children, are they the best person to manage your children’s inheritance? Or would another family member or friend be more suitable for this role? Another consideration is ensuring that your child’s inheritance can be used by their guardian (upon request) to cover that child’s education and general maintenance.
- Do you wish to enable your children’s inheritance to be used to generate wealth not only for your child personally, but for your grandchildren (and great-grandchildren)?
Particular types of Wills allow for a child’s assets to be held on trust for both their benefit and the benefit of their lineal descendants. These Testamentary Trust structures not only provide varying levels of protection from bankruptcy and relationship breakdown, but also receive special tax treatment – often (depending on the capital within the trust) enabling significant tax savings each year. Testamentary Trusts can also provide control options to require a child to be deemed ‘financially responsible’ before they gain control of their own inheritance.
- Have you named an appropriate person to control the estate process?
Often on the passing of one parent, the surviving parent would take on this role. However if both of you were to pass away simultaneously, who would administer your assets? Who would know which assets you hold, and make arrangements for your children to be provided for in the interim? This person should be reliable, organised and diligent – someone you trust to carry out your wishes. If you are unsure as to who would be suited to this role, your solicitor can suggest some options.
- Do you have sufficient insurance in place? And if you hold it in your Superannuation, do you have a binding nomination in place?
If you were to unexpectedly die, would your surviving spouse have sufficient means to pay your debts and financially provide for your children as a single parent? If not, you need to speak to a financial advisor about obtaining/increasing your life insurance (and also maybe TPD insurance). If you are a sole income family, it is not just insurance for the primary income earner that you need to consider. If the primary carer were to pass away, the surviving parent would either need to give up their job, or find alternative care for your children whilst they continued to work – could they afford to do this? While it it is good to have your life insurance in place prior to commencing your estate planning – this is something that can be addressed as part of the process and should not delay the preparation of your Will.
For completeness, at the time of preparing your Will we strongly recommend also completing an Enduring Power of Attorney. This document allows you to decide who will control your finances and make your personal/health decisions should you unexpectedly lose capacity (either temporarily or permanently). Unfortunately, if a person loses capacity without a valid Enduring Power of Attorney in place, their loved ones often need to apply to the Queensland Civil and Administrative Tribunal for appointment of a guardian and financial administrator to make decisions on their behalf. This process can be quite lengthy – often at a time when decisions need to be made quickly.
Ultimately, having a young family is precisely why putting an estate plan in place is so important – there are people who depend on you and are relying on you to take care of them (both during this lifetime and afterwards). Become part of the 50% of Australians who have their estate planning sorted.