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What is Estate Planning (and why is it important)?

Everyone talks about estate planning, but what exactly does that involve and why is it so important?

Estate planning is the preparation of documentation and tasks that will manage an individual’s assets and wellbeing in the event of their incapacitation or death. Estate planning may include the following:

  • A Will (which sets out any division and bequest of your estate)
  • A Power of Attorney (which gives a trustee or person the legal authority to manage your assets and make financial and legal decisions on your behalf)
  • Enduring Power of Attorney (a legal document that appoints an enduring attorney(s) to make health and lifestyle decisions on your behalf if you become unable, due to disability, illness or injury).

However, there are some challenges with traditional estate planning options, particularly around Wills being successfully challenged and overthrown in court. The most common challenge comes from family members under the Family Provisions Act. In fact, research shows that 86% of Wills were contested by the immediate family and 77% of these claims were successful, mainly under the Family Provisions Act*.

The treatment of superannuation can also have challenges. In the event of death of a superannuation policy holder, the funds are passed to nominated “beneficiaries” or “dependents”. If the funds are paid on death as lump sums to non-financial dependents they are taxed between 15% and 30% based on their contribution tax. This is akin to a death tax and is something that should be considered as part of your estate planning.

It is critically important to be aware of these challenges, to consider working with an estate planning practitioner, to ensure appropriate provisions are put in place and discuss your wishes with your immediate family.

Using Investment Bonds as an Estate Planning Option

Often investment bonds are only considered in terms of their 30% tax-paid status and as a wealth generating strategy for those on tax rates greater than 30%. However, they also have a strong application for estate planning.

Investors can invest in an investment bond choosing from multiple investment options and upon their death the funds are paid out directly to the nominated beneficiary outside of the will and the normal probate process.

Most of the investment bond cases we work on with Centuria LifeGoals have been related to solving estate planning issues, both with direct investors and through their advisers. This is due to the underlying uncertainty of other structures when it comes to planning your estate. The unique structure of investment bonds means that money can be left to any nominated beneficiary or beneficiaries outside of a Will and the inheritance is not subject to any personal tax on either party.

Investment Bonds are particularly useful for complicated families where there may be children from a previous marriage or others outside the family to whom a person wishes to bequeath an inheritance. Upon their death and presentation of the death certificate and without waiting for probate, the proceeds are paid tax-free to the beneficiary, regardless of how long a bond has been invested.

Alternative Ways to Transition Your Wealth

Many parents and grandparents worry their younger generations will be financially worse off, given today’s housing costs and economic uncertainty.

Centuria LifeGoals additionally offers a Child Plan option. The bond owner can elect an age for the child to automatically become the new bond owner, anywhere from 10 to 25 years old (known as the “vesting age”). When the child reaches the vesting age, they become the owner of the investment automatically, giving them full control over the investment. Centuria LifeGoals provides peace of mind for passing wealth to future generations.

Find out more about Centuria LifeGoals and try our forecasting calculator, LIFT, to forecast possible future after tax returns, based on your tax rate, investment contribution and asset classes selection. Alternatively, call us today on 1300 50 50 50 or talk to your financial adviser about how Centuria LifeGoals can work for you.

* Source: University of QLD paper “Having the last word”, 2015