Estate planning can be quite complex and often involves making a lot of difficult decisions. It can be easy to overlook smaller details when making “big picture” decisions such as who inherits what in your estate.
Here are three issues that are easy to overlook when estate planning:
Powers of Attorney
A power of attorney is a formal document giving another person the authority to make legally binding decisions on your behalf if you are unable to do so due to illness, accident or absence.
There are two types of power of attorney: general power of attorney and enduring power of attorney.
A general power of attorney will make financial decisions on your behalf for a specific period or event, such as going overseas.
An enduring power of attorney appoints someone to make financial and legal decisions on your behalf in the case where you lose mental capacity to make decisions. It may apply for many years in the event of dementia or failing cognitive health.
To guard against unethical behaviour, it is generally recommended that two or more attorneys be appointed jointly to create a system of checks and balances.
Insurance policies (other than superannuation) must have clearly nominated and up-to-date beneficiaries. Check your insurance policies annual statement to ensure details are up-to-date. Don’t forget about total and permanent disablement and trauma/critical illness policies as life cover may be attached to these.
Keep in mind, these policies will be paid directly to the nominated beneficiary and will not be included in your estate.
Superannuation funds deal with death benefits differently. Some automatically pay all death benefits to the deceased’s estate rather than distributing benefits directly; others distribute according to their discretion while some offer binding death benefit nominations, which allow you to choose whom your funds are paid to.
Self-managed super funds generally allow all of the above options, however, the trust deed must contain binding nominations. SMSFs must take great care with nominations as inadequate documentation can see an individual’s wishes overturned.
It is important to note only certain individuals can receive a super death benefit directly. Once you understand your options, choose an option and clearly document it.