Avoiding common estate planning pitfalls

Estate planning is a crucial but often overlooked element of financial well-being. It’s about ensuring that your assets and loved ones are taken care of according to your wishes after you’re gone. However, the process is rife with potential missteps. Leon McPaul, Senior Solicitor at Apt Wealth Legal Services, sheds light on some of the most common pitfalls in estate planning and how to circumnavigate them to ensure your estate is settled as intended.

“Leon highlights several critical areas where people often stumble when it comes to estate planning. He stresses the importance of holistic planning, pointing out that estate planning is much broader than just the will. Here is his list of common estate planning mistakes.

1 Relying on a will alone

Leon warns that a will alone is not enough.

“Often, people think that if they have a will, it covers every eventuality, but this is far from the truth. Estate planning encompasses a wide range of areas. At a fundamental level, your plan should encompass enduring powers of attorney, medical treatment decision makers and what happens with structures like companies, trusts and superannuation funds that don’t automatically fall into your estate. Overlooking these can lead to serious consequences for your loved ones and your legacy,” he cautions.

2 Neglecting to update your plans

Circumstances change, and so should your estate plan. Leon emphasises the need to regularly review and amend your will and related documents, particularly after major life events such as marriage, divorce or childbirth. “Many people don’t realise that in most Australian jurisdictions, marriage invalidates your will, but separation doesn’t. This means any will you created before your marriage is void, and your spouse becomes your beneficiary.

“And, if you separate and pass away before you are legally divorced, your spouse will remain your beneficiary unless you have updated your legal documentation.” He adds that alongside major life events, reviewing every few years is good hygiene to ensure your wishes remain relevant.

3 Not considering the impact of delays on loved ones

Many without a will assume that their assets will pass to their closest relative without hassle. But Leon points out that if you pass away without a will, intestacy laws govern the distribution of your property.

“Your assets will be distributed to loved ones under the rules of intestacy, which can cause delays, potentially putting loved ones into hardship, even if only temporarily. And, of course, it also means that your estate may not be distributed in accordance with your wishes.

“A well-structured estate plan should clearly delineate access to avoid added financial stress at a time when emotions are already high,” Leon says.

4 Overlooking the potential for dispute

Complex family dynamics, particularly in blended families or following recent separations, can lead to disputes over the estate. Leon underscores the importance of having a clear, up-to-date will to prevent such disputes or at least provide a solid legal framework from which to resolve them.

Leon mentions that it is not uncommon for people to decide to give less to one child, and this can cause prolonged, expensive legal battles for everyone.

“If you have a ‘black sheep’ of the family, it’s not as simple as giving them a smaller amount than your other children. In fact, it is a regular ‘myth’ that giving a token amount to that child may protect the will from challenge.

“This can commonly happen when a person is worried about how a beneficiary will use the funds due to a limiting factor, such as addiction. It’s important you speak to a legal professional about the best framework to protect the beneficiary in question and your legacy. There are options.”

5 Not talking about your wishes

We don’t like to talk about our mortality or that of loved ones, but Leon says that transparency is crucial when it comes to your estate plans.

“If you are giving children different inheritances, for example, one may get a property and another cash or other assets, it’s essential that they understand the why behind your decision – or they’ll be left to fill in the gaps and make assumptions after you pass.”

Leon adds that he often encourages clients to leave a letter with their will that explains their wishes. He says while it’s not legally binding, it can help to avoid legal challenges when your beneficiaries understand why you wanted things this way.

“The sentiment attached to a letter can really help people to accept their inheritance as it is,” he says.

6 Not understanding how property ownership set-up can impact blended families

Leon explains that if you own a property with your spouse but have children from a previous relationship, considering your property ownership set-up is crucial.

“Most couples enter property ownership as joint owners. But in the case of a blended family, this can become an issue when one partner passes away. With joint ownership, the property immediately passes to the surviving owner. There is no legal provision for the children of the deceased owner to challenge that legal principle when that has occurred.”

It may be very difficult or almost impossible to seek anything from that asset when the surviving owner passes away (for example, that surviving partner may gift that asset away during their lifetime to defeat a challenge to their will).

“The solution to this is often to look at tenants in common arrangement that make provisions for the surviving owner to remain in the property while acknowledging that the children of the deceased owner are entitled to an inheritance down the track,” Leon explains.

7 Overlooking the importance of plans for your business

If you are a director of a business, Leon says it’s important to consider what happens if you are incapacitated.

“Many people consider what will happen to their business on their passing, but not if they are incapacitated by illness or injury. And it’s something that, sadly, can and does happen to anyone at any age through accident or injury – it’s not just something to consider as you age.

“If you have not made plans for this, the business can go into a holding pattern, where decisions can’t be made, and business as usual can’t progress. This can be disastrous for a family business. So it’s important you plan to cover this possibility,” Leon says.

So, how do you avoid these pitfalls?

According to Leon, there are five critical steps.

• Engage in comprehensive estate planning: Consider every aspect of your estate, including legal instruments beyond the will.
• Keep things up to date: Review and adjust your estate plan after any significant life change and every few years, regardless, to keep your wishes current.
• Communicate with loved ones: Transparency with family members about your estate plan can pre-empt misunderstanding and discord.
• Document your wishes: Keep all your documents, including your will, in a safe and accessible location. Consider leaving a letter explaining your decisions to help loved ones understand your position.
• Seek expert advice: Work with a team of qualified legal, tax and financial professionals to create a comprehensive plan tailored to your unique situation.

“Estate planning is a testament to a life well lived and a final act of caring for your family, so it’s important to safeguard your legacy and ensure your affairs will be handled just as you intended. With careful planning and a little foresight, you can avoid common pitfalls and ensure your final wishes are honoured without burdening loved ones,” Leon concludes.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.