When is the right time to think about estate planning?
Many people think of estate planning as something for "older people" in their twilight years. Often, it's the proximity to death that prompts them to start planning. While death is inevitable, its timing is uncertain. Unless someone is in poor health, they might assume it's far off in the future. However, life has a way of surprising us.
Data from the Australian Institute of Health and Welfare and the Australian Bureau of Statistics in 2022 show:
Premature deaths
1 in 3 deaths (32%) occurred among people younger than 75
Causes of death (25 – 44 Age Group)
- Suicide
- Accidental poisoning
- Land transport accidents
Causes of death (45 – 64 Age Group)
- Coronary heart disease
- Lung cancer
- Liver disease
Causes of death (65 – 84 Age Group)
- Coronary heart disease
- Lung cancer
- Chronic obstructive pulmonary disease
Since death can occur at any age and often unexpectedly, it's wise to have contingencies in place. Waiting until you feel "old enough" might be too late. Without a proper estate plan, the consequences can be significant:
- Family disputes – Without clear instructions, your loved ones might argue over your assets, leading to long-running disputes.
- Higher taxes – Your beneficiaries could face higher taxes, reducing the amount they receive.
- Legal battles – The absence of a Will can result in costly and lengthy legal battles to determine the distribution of your estate.
- Loss of control – If you become incapacitated, decisions about your medical care and finances might be made by someone you wouldn't have chosen.
- Guardianship issues – If you have minor children, not having an estate plan can mean that the court decides who will care for them.
- Probate and administration costs – Your estate may incur additional costs which could have been avoided with proper planning.
Keeping the Will up-to-date
Reviewing and updating your Will regularly is crucial for several reasons:
- Family disputes – Major life events such as marriage, divorce, the birth of children or grandchildren, or the death of a beneficiary can significantly impact your estate planning. Updating your Will ensures it reflects your current family situation.
- Higher taxes – If you acquire new assets like property, investments, or valuable possessions, it's important to update your Will to specify how these should be distributed.
- Legal battles – If the individuals you've appointed as executors or trustees are no longer able or willing to fulfill their roles, you'll need to appoint new ones.
- Loss of control – Tax laws can change over time, and updating your will can help you take advantage of new tax-saving opportunities or account for changes in tax rules.
- Guardianship issues – Your preferences regarding asset distribution, charitable contributions, or other matters may change as you grow older or as circumstances in your life change.
It's generally recommended to review your Will every three to five years or whenever significant life changes occur.
Assess the financial impact of death
In the event of death there are some common expenses and funding requirements to consider:
Debts and mortgage repayments
All debts need to be paid out of your estate before anyone receives any benefits. In the case of a mortgage, this will need to be serviced by the beneficiary who inherits the property, else it will be sold by the lender.
Funeral expenses
These can include such things as coffin or casket, burial or cremation fees, funeral director fees, professional fees for celebrants or ministers, venue hire, flowers, transportation of hearse, etc.
Estate administration
These can include such things as probate court fees, professional fees for solicitors, maintenance and clearance costs of the estate's property, etc.
Living expenses – financial dependants
Your financial dependants will need money for everyday living expenses and utilities since you're no longer there to provide for them.
Gifts to loved ones
You may wish to provide for a loved one or cause in the form of financial support – e.g. home deposit, charitable donation.
Children's education or childcare
If you have children and depending on their ages, you may wish to cover the cost of childcare or school fees.
Consider taking out life insurance to fund any shortfalls in the event of death
Life insurance may be a cost-effective way to ensure your loved ones and beneficiaries have enough money to pay for contingencies and living expenses when you are no longer around.
In the event of your death, life insurance pays out a lump sum to your beneficiaries, whom you nominate on your policy.
Most life insurance policies also include a terminal illness benefit, which pays you a lump sum if you're diagnosed with a terminal illness and not expected to live for more than 12 months to 24 months.
