Estate Planning – the most overlooked area of your financial security

Let’s talk about the three most important aspects of your estate plan. Your Will, Power of Attorney and Enduring Guardianship.

Why should you bother having these documents?

Your Will

As far as our office is aware no one has been able to escape death. Yet many of us fail to write effective wills which say who will get what assets, when they will get them and in what way. In fact the NSW Trustee and Guardian reports that at least 45% of Australian do not have a valid will¹. In Australia of every 10 will which are contested 7 are overturned².

Here are some mistakes people tend to make when organising their affairs:

• They simply have no will and die intestate meaning their assets will be distribute according to state laws.
• Not updating your will: relationships change, assets such as cars or new purchases occur, new property purchases can occur.
• Choosing the wrong executor: for example you may think choosing a spouse or child is a good idea however someone who is more objective and able to meet the complex demands of the job may be more suitable.
• Not updating beneficiary designations: who you nominate as a binding beneficiary on retirement accounts and insurance policies is very important
• Naming a specific investment: If Mary states in her will that she gives Ann her term deposit of $100,000 in her Commonwealth bank account with account number ending 4567. If this term deposit no longer exists in this account Ann will not have a right to the money.
• Not thinking about the tax implications of the WAY a beneficiary of the will gets the money.
• Not consulting a legal professional in regards to your Estate Planning Affairs. Many believe their affairs are very simple. What they do not realise is that a big mistake on a ‘simple’ estate may see most of the estate absorbed by legal fees in court or some potentially beneficiaries getting nothing, despite the deceased wanting them to benefit too.

A Power of Attorney

Let’s assume you set up your brother Tim as your Power Of Attorney(POA). This would mean Tim can manage your assets and financial affairs on your behalf.

Tim could use his Power of Attorney for almost any financial purpose and authorise your attorney, for example, to collect debts, operate your bank account/s, manage your investments, collect rent, pay bills or carry out any other function which can be lawfully delegated to an attorney

Continuing with the example of your brother Tim, making Tim your Power of Attorney does not mean that you will lose control over your financial affairs. As long as you retain mental capacity to make your own decisions you still have authority to deal with your assets just as you did beforehand. A Power of Attorney simply gives your attorney formal authority to manage your financial affairs according to your instructions.

Let’s assume Tim no longer has the time to help manage your affairs, his Power of Attorney can be cancelled (revoked) at any time provided you have the mental capacity to do so.

There are two types you should be aware of, a General Power of Attorney and a Enduring Power of Attorney. The difference is that a General Power of Attorney ceases to have effect if a person loses mental capacity, while an Enduring Power of Attorney continues to be in force after you have lost capacity to manage your affairs.

Your attorney is in an important position of trust and has a responsibility to always act only in your best interests.

A POA must:
• avoid doing anything as an attorney which would mean that their interests conflict with your interests
• obey your instructions while you are mentally capable and any directions you make in the Enduring Power of Attorney
• act according to any limits or conditions placed on their authority
• not give gifts, or give themselves or others a benefit using your finances unless you specifically authorise this
• keep their finances and money separate from yours
• keep accurate and proper records of their dealings with your finances or property.

What if you don’t set up a POA and are unable to manage your affairs?

Someone may need to apply to the Guardianship Division of the NSW Civil & Administrative Tribunal to appoint a financial manager to make these decisions for you. This involves a tribunal hearing where evidence will be heard to assess if you have lost the capacity to make decisions and whether you need to have someone appointed to make financial decisions on your behalf. If it is decided that you need someone to make decisions about your finances and legal affairs, a financial manager will be appointed. While they have an obligation to take your views into account, the ultimate decision as to who they appoint rests with the tribunal.

An Enduring Guardianship (EG)

An EG or ‘Enduring Guardianship’ is similar but makes health, lifestyle and medical decisions for you when you are not capable of doing this yourself.

An Enduring Guardianship only comes into effect if or when you lose capacity and will only be effective during the period of incapacity, therefore, it may never become operational. However, it is a good way to plan for the future, particularly for unforeseen situations.

Enduring Guardianship’s often come into play in Aged Care where a family member must make decisions regarding medication, care and steps forward. This may particularly come up for those with dementia, Alzheimer’s, unconscious or otherwise unable to make decisions about their health.

It is important to have this document in place as it ensures that when you may not be able to decide about your situation you can have someone else make decisions based on what they believe you would want or what would be the best for you.

• NSW Trustee and Guardians website: https://www.tag.nsw.gov.au/wills-faqs.html
• ’Having the Last Word? Will Making and Contestation in Australia’ report, The University of Queensland, Victoria University and Queensland University of Technology.

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