People often think they have a very clear idea of what they want to achieve with their estate plan and they usually think it will be straight-forward. But that’s not always the case. Consider these examples of mistakes which can be unintentionally costly for beneficiaries. We will be covering this topic over the next two weeks.
1. Not providing for dependants
If you want to leave someone out of your Will, you should always seek professional advice in this regard. They may suggest preparing supplementary material to explain why you are not providing for them or to include a reference to that particular beneficiary being left out and confirming you are aware they can challenge but chose to still exclude them. This will not preclude that person from lodging a claim, but it means that they cannot argue that they have simply been forgotten. Many people also mistakenly assume that as long as a person is bequeathed something in the Will, no matter how small, that person cannot contest the Will because it is obvious they were not forgotten. This is not true, and can add insult to injury. Note that on divorce, your ex-spouse is not automatically disinherited (although they are generally removed from your Will as a beneficiary via legislation), especially if your ex-spouse is financially dependent on you. They may still have a right to claim on your estate. Once again, professional advice is required here.
2. Not specifying debts to be paid
If you do not specify that debts are to be paid out before distribution of your assets, certain beneficiaries might be unintentionally lumbered with the debt. Consider the case of the father who left one child life insurance proceeds of $400,000 and the other an investment portfolio, also worth $400,000. On the surface, it was an equal distribution but the investment portfolio had borrowings of $100,000 – thus the second child actually received only $300,000.
3. Not signing the Will
One case in the courts recently revolved around the simple fact that a young man had not finalised the signing of his new Will. His estranged spouse is, therefore, the beneficiary of his entire estate while his parents, who he intended to benefit, will receive nothing.
4. Using Will kits incorrectly
Will kits may seem like an easy and cost-effective way for people to sort out their estate planning needs although I usually tell people to use them at their own peril.
Just because a document is in the format of a Will doesn’t mean that it actually covers everything that a Will needs to cover. This is especially true when the person who fills out the Will form has no knowledge about structuring financial affairs or sorting out ownership of assets.
A good example is choosing an Executor. Choosing the correct Executor is vital to making sure the estate is properly distributed as the Executor is the one that has the power in the estate. Choosing the wrong person for the job may cost the estate time and money and, in some cases, leave the beneficiaries with a long period of vexation and anxiety while they wait for their inheritance.
5. Under-estimating estate size
An estate is rarely too small to justify some kind of planning. The classic example is superannuation – most, if not all, working Australians have superannuation which can include significant life insurance. This alone can be enough to warrant an estate plan. It may be as simple as ensuring that someone has been nominated as the beneficiary of the super fund but even this is worth doing properly.
Keep in mind that a divorce generally does not nullify the binding death benefit nomination.
Please reach out to your adviser if you are seeking advice on an estate plan to protect your loved ones.