The Five Elements of a Good Estate Plan

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The Five Elements of a Good Estate Plan: Townsends Business & Corporate Lawyers

It’s a myth that only wealthy people need estate planning.  Just about everyone needs some level of estate planning.  To understand why, and to see the five elements that constitute a good estate plan, read on …

Just about every adult person over the age of 25 needs some kind of estate planning.  If you have superannuation then that part of your assets will not be governed by your Will.  You need to consider how you will direct your super death benefits and how they will impact on what you say in your Will.  This is estate planning at its most fundamental.

What is estate planning? 

Simply the establishment of a management plan to deal, after their death, with all the assets a person (we call the testator) owns or controls.

So what are the FIVE elements that constitute a good estate plan?

  1. Clearly the first and most fundamental element is to ensure that the testator’s wishes are complied with; to ensure that the plan is crystal clear so it won’t be interpreted differently after the testator’s death and result in assets being distributed or used in a manner different to how the testator wanted. But this should also be achieved in a tax-effective manner.  Tax should not drive a testator’s testamentary wishes.  But no-one wants to pay more tax than they absolutely have to, especially when that tax is reducing resources that would otherwise be available to their surviving family.
  2. Minimising the opportunity for successful challenge to, or claim on, the estate is the second element.  There is little point in a plan which sets up the estate for a challenge by an overlooked family member.
  3. The plan should comply with the testator’s legal and familial responsibilities in order to avoid challenges and ensure the integrity of the estate’s administration. It should likewise deal effectively with any social responsibilities the testator believes they have in respect of charitable giving.
  4. The plan should allow the beneficiaries the opportunity to protect their inheritance from their creditors or estranged spouses, and to arrange their own affairs in a tax-effective manner going forward.  Many people believe that a person’s inheritance is a windfall that should not be available to creditors who had dealings with the beneficiary without any expectation of such windfall.  Similarly many believe that an inheritance should follow the testator’s bloodline rather than be available to their children’s estranged spouses and their families or future relationship partners.
  5. Finally, a good estate plan must be understandable by the testator and their family.  They must understand how the plan works and why. There is great danger in instituting an estate plan that is so complicated and difficult that the chances of faulty implementation are high or that costs a considerable amount of future professional fees to maintain.

If the estate plan:

  • deals effectively with the testator’s wishes in a tax-effective manner
  • minimises the prospects of successful challenge
  • complies with the testator’s legal and social obligations
  • allows the beneficiaries the opportunity to protect their inheritance from future claims, and
  • can be readily understood and implemented by the testator and their family then it will have achieved its primary goals and provide considerable benefits to the testator’s family and much-needed peace of mind for the testator.

Peter Townsend
Townsends Business & Corporate Lawyers
(02) 8296 6201
peter@townsendslaw.com.au                  

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