Estate planning and what it means for your loved ones

Estimated reading time
 6 min

Learn all about

• The different legal documents you will need to organise for your estate plan
• When the best time is to start the estate planning process
• How life insurance can give your loved ones extra protection

Starting a discussion or thinking about what arrangements to make when you pass away can be uncomfortable for a lot of people.

But by avoiding the issue entirely, there might be unnecessary complications and consequences for your loved ones. For example, not having any plans for your assets might cause legal issues for your loved ones because of an unequal distribution of wealth.

The good news is that you can put in the hard work now to get your affairs in order for later. This will help your loved ones know what to do with your assets, avoid as much conflict as possible, and you might also help them be financially comfortable when you’re not around.

What is estate planning?

Estate planning has many layers. One of this is making arrangements for others to look after your wellbeing and protect your wealth if you become incapable to do so, like if you develop a condition that affects how you make decisions.

Another part of estate planning is working out how to transfer your wealth to your loved ones once you die. For example, this could be giving most of your assets to your spouse then evenly splitting the rest between your children.

What happens if you don’t have an estate plan?

Without an estate plan, the law will determine who makes your medical decisions and where your assets go. You’ve worked hard to earn your money during your lifetime, so it’s smart to make sure that it goes to who you want.

What documents do you need for your estate plan?

Estate planning may involve several different documents, which include:

• A Will – This is a document that appoints a person or persons (an ‘executor’) to manage your estate. This includes specifying how the assets in your estate will be distributed. Your Will might also have instructions about your funeral, appoint a guardian for your children, and provide instructions on what to do with your pets.
• An enduring power of attorney – This document appoints someone to make legal and financial decisions for you. If It’s a good idea to chat to your lawyer or an estate planner about which estate planning documents you’ll need for your specific situation.
• A medical power of attorney – Also known as an enduring power of guardianship in some states, you can nominate someone to have the authority to make health decisions for you when you can’t make those decisions yourself.
• An attorney for personal services – Also known as an enduring guardian in some states, this document gives a nominated person the authority to make lifestyle decisions for you, including where you are to live.
• An advance health care directive – This document explains your goals , values and how you want to be cared for in the future if you can’t make decisions for yourself. Depending on the state or territory you live in, there are different documents, legal requirements and process for an advance health care directive, so check your state’s relevant site to be sure.
• A superannuation binding death benefit nomination – This determines how and who gets your superannuation when you die. If you don’t make a binding nomination, your super fund can decide how your superannuation will be paid (though there are limits). There are strict rules with who you can nominate and some binding nominations expire within 3 years, so it is important to review this regularly.

It’s a good idea to talk to your lawyer or an estate planner about which estate planning documents you’ll need for your specific situation.

When is a good time to start estate planning?

Just like buying a home or having children, organising your estate plan is a large part of adulthood.

There’s no specific time for when to start. In fact, you can do it as soon as you turn 18. But if writing up an estate plan or creating a Will when you hit adulthood feels overwhelming (or you’ve put it off for a while now), that’s okay and perfectly normal. Here are some big life milestones that are a great launching off point for thinking about (and drafting) your estate plan:

• Buying a home is one of the biggest assets you might own or invest in (or both!). As it reflects a growth in your wealth, having (or updating) a Will and providing clear instructions on who gets it can stop any arguments in their tracks.
• Getting married naturally results in your spouse becoming your next of kin. But this might not be the right decision, as you might want to give some of your estate to other loved ones. Getting married will also cancel out your current Will, unless the Will was made with the marriage in mind.
• Getting divorced will impact your Will in different ways depending on where you live. Some states will cancel an existing Will, or they will take out your ex-spouse in an existing will.
• Having children or adopting can be a good time to start thinking about the future. An estate plan can ensure your children’s financial wellbeing and give you the chance to nominate a guardian should you pass away.
• Experiencing a death in the family can motivate you to start the estate planning process, especially if that family member didn’t have one in place.

  Quick tip:

It’s always a smart idea to review and (if necessary) update the documents in your estate plan every three to five years. You should also update it whenever you experience a new life moment, like no longer being in contact with your nominated guardian or having more children.

Should you take out life insurance?

Even if you don’t think you own much and there is no point having a Will, many people do have life insurance. This type of insurance is often connected to their super, and it can be quite a significant amount. Plus, it can play a huge role in estate planning, as it can protect your loved ones (and yourself) if something happened to you. For example, it can significantly increase the size of your estate when you pass away. But the amount of money you can get depends on the policy you take out.

  Brain hack:

Humans are all hardwired to avoid risk and gravitate towards certainty – all because of a way of thinking called zero risk bias. So, it makes sense that you might take out life insurance to remove the risk of your loved ones not being financially supported when you’re gone. But it’s a big decision, so remember to sit down with your loved ones (and insurance provider) to work out if it’s the right decision for you.