An effective Estate Planning strategy protects your family and assets in the event that "something were to happen" to you. The main tools are:

Wills

Everyone needs a Will, but those who MUST have one include:

• Have financial dependents (eg children);
• Have been married before, or have children to a previous partner;
• Have various ownership structures;

Additional components

Testamentary Trust

This is a discretionary trust that becomes active upon your death. Generally the purpose of this trust is to:

• "drip-feed" an income to dependent children to fund their living expenses;
• Prevent assets transferring directly to beneficiaries whose situation may result in the inheritance being lost or squandered, for example they going through a bankruptcy or divorce, or may lack the required skills;

There must be a provision in the Will for a Testamentary Trust, otherwise this option will not be available to your beneficiaries.

Appointment of Guardians

The appointment of a Guardian is usually included in the Will as a safeguard in the event that both parents were to die before the children turn 18. It is the Guardians role to make the important "life decisions" on behalf of the children, and as such you need to attempt to select someone that hold similar social and cultural views to yourself.

If you are a parent with children under 18 years of age, then your Will should have appropriate guardianship provisions.

Superannuation

Generally, upon death, the Trustee of your superannuation fund has discretion on the distribution of the proceeds of investments and life insurance within the fund. However, this discretion can be overridden with the use of a Binding Nomination. With this form you can nominate that the funds transfer to either the Estate (ie according to the Will) or a Financial Dependant (eg spouse or school aged children). Without this, the process of claiming funds can take many months, or possibly years even for simple situations.

Tax

There are considerable tax implications depending on how your assets pass. For example, if you have two children, one is a 18 year old student, and the other is 25, and works, and you nominated that a $1,000,000 Life policy via superannuation were to be split 50/50. Due to the differing tax treatment for those who are financially or non-financially dependants, the 18 year old would receive $500,000, and the 25 year old would receive around $340,000.

Challenges to the Will

One of the main reasons for a challenge to a Will is inadequate provision for a beneficiary, which often occurs when using a "newsagent" Will kit as the will-writer does not understand what needs to be included.

Powers of Attorney

There are various types of Powers of Attorney, which serve different purposes:
General Power of Attorney - enable someone else to act on your behalf. This ceases if you become mentally unable to act on your affairs;

Enduring Powers of Attorney (Financial) - Similar to a General Powers of Attorney, except that it continues regardless of mental capacity;

Enduring Power of Attorney (Medical Treatment) - This allows you to nominate someone to make decisions regarding medical treatment. This may be an issue where you may or may not wish to be supported by artificial life support.

The key financial planning issue is that in the event of incapacity, without a Power of Attorney in place, your assets may become inaccessible. This could be a major issue for you and your family if these investments or cash are required to met mortgage payment or treatment due to illness or accident;

Expert Advice

Considering the above pitfalls of not having Estate Planning strategies, it is essential that you seek expert advice and ensure that your Will, Power of Attorney and other Estate Planning documents are drafted correctly by an expert. The benefits of having correctly drafted and effective documents far out way the costs of engaging an expert; at least they will ensure that your assets are protected and upon your death passed on, according to your wishes.

If you do not already have access to an expert in this area, we would like to introduce Alan Prasad, from Sydney CBD law firm ALN Legal (www.alnlegal.com.au). We are able to work closely with ALN Legal to ensure that your Estate Planning is structured appropriately. Please let me know if you would like me to make contact with Alan on your behalf.