Alex: a successful business owner in his early 50s, came into the office for a consultation. He mentioned that he recently lost his wife in a tragic accident. As Alex navigates through the emotional turmoil of his loss, he realises the need to make important decisions regarding their assets. “I’ve been thinking about what would happen to my assets if something were to happen to me as well, but I’m not entirely clear on the difference between having a Will and Estate Planning. Could you explain?”
What is a Will?
Your Will is a legal document in which you specify many aspects of your Estate Plan, considering guardians for children, designate Beneficiaries, and appoint your Executor, the person who will be responsible for carrying out your wishes when you passed away.
What is an Estate Plan?
Estate planning involves a high-level view of your relationships and assets, including those ‘assets’ like trusts, companies, superannuation and insurance which are not automatically managed through your Will. Often clients also want power of attorney documents financial and health-related decisions while they are alive but unable to make decisions.
So now, what is the difference between Estate Planning and making a Will?
Essentially, making a Will is one important piece of the estate planning puzzle. Although it’s a key component of the Estate Plan, there are often other critical arrangements to make, depending on your relationships and financial situation.
While Estate Planning and writing a Will often go hand in hand, they are not the same thing. Simply put, an Estate Plan is a broader consideration of action and protection, covering more than just who you want to receive your assets. Your Estate Planning documents may apply during your life as well as after your death. This may include business succession, other investments and assets. A Will, on the other hand, is just one very important document that is part of an Estate Planning.
What is included in Estate Planning?
- Will: A legal document that outlines how a person’s assets and property will be distributed upon their death. It may also include instructions for guardianship of minor children if applicable.
- Trusts: Trusts are legal arrangements that allow a third party, or trustee, to hold assets on behalf of beneficiaries. Trusts can be used for various purposes such as minimising taxes, providing for minor children or family members with special needs, and controlling how assets are distributed over time. Often key roles can be determined in your Will.
- Companies: Commonly used for investment and business, it’s critical to make sure that shares and Directorships are appropriately managed.
- Power of Attorney: An enduring power of attorney is a proactive arrangement that allows you to appoint trusted individuals to act on your behalf and manage your finances and make personal / health decisions. Without this, court participation may be needed, and decisions may be made by people you wouldn’t choose.
- Healthcare Directives: This directive enables you to maintain control over your medical decisions and provides clarity for your loved ones during challenging times. Just like an enduring power of attorney, you can appoint someone to make healthcare decisions on your behalf if you are unable to do so.
- Beneficiary Designations: By designating beneficiaries for assets such as life insurance policies, superannuation and investment accounts, individuals can tailor their estate plans to align with their wishes.
Why is it necessary to have both Wills and Estate Planning?
Both Wills and Estate Planning are required to make sure that you are aware of potential challenges to your estate, your wishes are executed in a considered manner and that assets are efficiently managed in the aftermath of death. They work together to lay out a complete structure for protecting your legacy, giving you and your family peace of mind.
Who needs Estate Planning?
Contrary to common misconceptions, Estate Planning is not solely for the wealthy or elderly. In fact, people of all ages can benefit from taking a moment to think through their lives and design an effective Estate Plan. In the event of your incapacity or death, your Estate Plan should include provisions for the care and financial support of any dependent family members, including a spouse, minor children, or those with special needs. Finally, an Estate Plan may improve the tax position for beneficiaries and provides a fast, orderly distribution of your assets.
Disclaimer
This page is not intended to provide legal advice and does not create a client-lawyer relationship. This post is provided for general information purposes and should not be relied upon as a substitute for legal advice. If you need help with legal advice for your particular situation, please contact our office (details below or on ‘Contact’ page) and we’ll be happy to assist you.