Steps you should consider when estate planning

The importance of
estate planning

Thinking about how your estate is distributed after you pass away is more than just writing a Will. It’s an important part of your financial planning, as you need to make sure your legacy is left in the right hands and there’s minimal financial stress and tax that needs to be paid.

As a financial planning exercise, estate planning is a valuable stocktake of your assets and income, as well as your relationships. A comprehensive estate plan will make sure your legacy goes to the people you want it to. Here’s the steps you should consider:

1. Do a stocktake of your worth

If you have a financial planner you probably do this annually and at tax time. If you don’t, take the time to list all your assets including investments, shareholdings, your super or pension and your home. Include any business partnerships and insurance policies inside and outside of super as well. (You might be surprised how much you’re worth!)

2. Evaluate your relationships

This is a non-financial stocktake and for many it should be a simple one: It all goes to the surviving spouse or shared equally between your children. But not many of us have had simple lives these days and may have changed spouses, had more children or relationships have changed. The people you choose to receive some of your estate are known as beneficiaries.

It will be valuable to discuss your thoughts with your family before finalising your Will to make your intentions clear. It can avoid future legal action and family conflicts.

3. Super and beneficiaries

It’s worth considering how super is taxed before deciding on how to distribute your estate. Your super is treated separately from your Will unless you instruct it to be paid to your estate. The tax imposed will depend on whether it is paid as a lump sum or pension and your relationship with the beneficiaries.

A ‘tax dependant’ under tax law includes current and former spouses and de facto partners, children under 18 and anyone who is financially dependant on you. Adult children are not included.

Here’s where it gets technical. Your super is made up of taxable and untaxable portions. The taxable part is further broken down into taxed and untaxed portions, depending on how you made the contributions. We’ll focus on the taxable portion, as your EISS Super fund is a taxable fund.

  • A lump sum paid to a tax dependant is tax-free.
  • A lump sum paid to non-tax dependant beneficiaries is taxed:
    • The taxed part of your super benefit (which includes the super guarantee contributions you’ve made from before-tax income) is taxed at a maximum of 15% plus the Medicare levy.
    • The untaxed portion is taxed at 30% plus the Medicare levy. (These usually include a life insurance payout.)
    • The beneficiary will declare this as assessable income in their tax return. There are tax offsets of 17% on the taxed portion and 32% on the untaxed portion which are withheld by the super fund.

If you bequeath your super as a pension, the tax payable will depend on your age at death and the age of the beneficiary. (Note: You can’t pay a death benefit as a pension to children over 25.) Here, we’re assuming it’s a taxable taxed fund, like EISS Super.

  • If you or the beneficiary are aged 60 and over at the time of your death, the pension will be paid tax-free.
  • If the beneficiary is under age 60 at the time of your death, they’ll pay income tax on this amount at their top marginal rate, minus a tax-offset of 15%. From age 60, the pension will be tax-free.

Taxation is a complicated mix of tax and super laws. For instance, with payments to a non-tax dependant, there may be tax benefits in directing your benefit to be paid to them via your estate instead of directly1.

There is more information on the ATO website2, plus it may help to talk to a financial planner and make sure your beneficiary nominations are up-to-date.

Update your beneficiaries

There are different types of beneficiary nominations but the only one offered to EISS Super members is a lapsing binding nomination.

This means the trustee is required to pay your benefit to the people you have specified. They need to be either a dependant or your legal personal representative, who will transfer the benefit into your estate. They lapse every three years, which will give you the opportunity to re-evaluate who you will keep as your beneficiaries.

Where you haven’t nominated a beneficiary, the super fund’s trustee will pay the benefit to your dependant(s) or your legal representative. They will be required to make an application and a determination shall be made following receipt of all applications. Having a binding nomination streamlines the application and determination process so that your loved ones can access your super funds much quicker than what would normally be the case.

More information about nominating a beneficiary is available in our Nominating a Beneficiary fact sheet.

Making a will

Your Will is the main document outlining how you would like to have your assets distributed after you pass away. Here’s a checklist to use as a starting point.

  • Determine what assets and liabilities you have and what is and isn’t included in your estate.
  • Determine who your beneficiaries are.
  • Consider all of your dependants, including spouse(s), children etc.
  • Work out what you want each of your beneficiaries to receive from your estate. If you are leaving certain relatives out of your estate, you should outline your decisions in your Will, to minimise any future challenges.
  • Appoint an appropriate executor of your Will and confirm they’re willing to act in this role.
  • Think about a backup executor in case they decline or pass away before you do.
  • If you have dependant children, appoint a guardian.
  • Leave instructions on where, and if, you want to be buried or cremated.
  • Think about other assets that do not form part of your estate, such as your superannuation and insurance policies.
  • Determine if you want to provide for a charitable donation.
  • Consider complicated matters, like businesses, previous relationships or financial problems family members might have. A testamentary trust could protect your estate from legal claims.
  • Identify where you’ll keep your Will.
  • If your health is deteriorating, appoint someone you trust to have Powers of Attorney and Enduring Guardianship.

Leaving without a will

If you don’t leave a Will, you die ‘intestate’ which means your estate will be distributed according to a formula in the Succession Act. Generally, if you have a spouse or domestic partner, they are entitled to your whole estate. If you have children, the estate is divided evenly between the spouse/partner and children.

This might not be the way you intended, and the distribution is open to challenge by anyone who has had a dependant relationship with you, at any time.

Drawing up a Will is reasonably inexpensive these days, particularly if it’s a straightforward one. You can use the NSW Trustee and Guardian service to act as your Executor. Alternatively there are cheap Will kits, or you can talk to a solicitor.

More detailed information is available in our  Your Will and Estate fact sheet.

Testamentary trusts

A testamentary trust is set up after your death to accept your estate as part of your Will. It requires a trustee and clearly identifiable beneficiaries. The trustee has discretion over distributions – amounts and the timing.

The benefit of a testamentary trust is to protect your estate from legal claims from family over issues such as divorce, bankruptcy, debts or where they may attempt to sue your estate. It also allows the trustee to distribute money to beneficiaries in small, tax-effective ways to help them minimise tax and keep social security entitlements.

As you can see, estate planning can be complicated and the normal disclaimer about not taking your personal situation into account is very important here. Every family is different. It will be worthwhile talking to your family and professionals like your solicitor and your financial planner.

1 Tax on super death benefits: Paid to estate v beneficiary, Money management, 13 June 2019.
2 Withdrawing your super and paying tax; ATO website.

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If you have any questions about estate planning, an EISS Super financial planner may be able to help. Please call us on 1300 369 901 (and select option 2), or click the button below.

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