The Dangers of Inadequate Estate Planning
by Lindsay Stoddart
In today’s complex world and even more complex family structures, best practice would suggest that all Estate Planning is conducted as a joint professional service by your Financial Adviser and Lawyer. In the instances where higher net worth clients are involved, it would also be prudent to involve the client’s accountant as well.
Estate Planning (EP) – how do we define this?
My definition for EP is that it includes the objectives of:
“Clarifying the client’s assets; creating a platform for wealth creation; and documenting a creative succession plan (in life, retirement and on death) that fully meets the client’s hopes, dreams and aspirations for family.”
Yet 60% of families with young children and 54% of Australians generally do not even have a basic Will.
Wealth creation for retirement is minimised or even neglected. And safeguards for life and the passing on of wealth at death are not considered.
The Dangers – from personal experience
I do not like to be negative, I am by nature a glass half full man and an optimist but the stories below may prompt you to reconsider contacting an experienced estate planning lawyer to put your documents in place; and if they are five years old or circumstances have changed, to review your existing documents.
No Will or a bad Will
Do you know that if you die without a Will the legal costs on grant of letters of administration could be increased by $1,500 to $2,200? You are said to die intestate (no Will) and the family or friends you intended to benefit may miss out altogether.
If you have minor children, have you appointed guardians in your Will? Recently I ran a case involving the guardianship of two orphans. The parents were killed in a motor vehicle accident. They had no Will and for that reason no testamentary guardian. Both sides of the family wanted to have the children and so far $50,000 has been expended on legal fees.
As the parent of young children you will have firm ideas on who should care for your children in the case of tragedy. Do not leave it to the Court to make the decision you can make now. Update your Will regularly. And if you have children from a previous relationship, you may wish to appoint a guardian not so much to take over from your first partner (which is probably not possible) but with your Trustee to protect your children in relation to the inheritance you leave them.
Have you left anyone out of your Will? Are your executors the right people? Are they still alive? Is it appropriate to now include your adult children? Do you want to leave a gift to a favoured charity? Especially if your family is young or your family is small in number, do you have a 'tragedy' clause in the event of no survivors?
Enduring power of attorney (EPOA)
Any adult with property (real estate, shares and investments) must strongly consider having an enduring power of attorney.
Three sad stories
A financial planner's personal story
Deanne, herself a financial planner, completed her residential home purchase. She then asked her lawyer to prepare an EPOA and Appointment of Enduring Guardian (AOEG) for her husband and herself.
“You don’t need those documents” said the lawyer.
Deanne then found a new lawyer with estate planning expertise and instructed for these documents to be prepared.
By the way, her husband was recently involved in serious injury arising from his police duties. Deanne required his EPOA to complete financial dealings on his behalf when he was seriously incapacitated; and when he was under anaesthesia she had to give vital instructions in relation to a blood transfusion.
Her first lawyer was not at all helpful.
No power of sale
John, an 81-year-old Greek Australian citizen needed to sell the house he owned jointly with his wife to move into a retirement village. His wife had been in a vegetative state for more than four years. He did not have an EPOA and hence no ‘absolute benefits clause’.
His solicitor had told him he would never need it.
The house was valued at $390,000 and the retirement bond was $330,000. John could apply for a financial management order for sale under state guardianship law (inexpensive, but a slow process that was unlikely to allow him sufficient funds), as he would only be able to access his 50% share.
He could seek a Supreme Court order for sale at a cost of $10,000 to $16,000 to him personally but he had no assurance the Court would grant him the right to use his wife's funds. He was trapped and all because he did not invest several hundred dollars in an EPOA.
An EPOA saves the day
Jessica and Tom, a young couple in their late 20s, had been married for three years, with a $500,000 home and a $460,000 mortgage.
Tom was severely injured in a car accident and was in a coma in the local hospital.
He had no insurances and little sick leave. The mortgage repayments took in excess of 76% of their combined salaries. With EPOAs in place, Jessica was able to quickly sell the house and preserve their small equity.
Without the EPOA, the quickest procedure (but still with some months delay, plus a $10,000 to $16,000 legal bill) would have been to seek an order for sale from the Supreme Court.
Appointment of Enduring Guardianship & Advance Health Care Directive
Equally as important is the appointment of enduring guardian (AOEG). An AOEG is made under the Guardianship Act 1987 to make personal lifestyle decisions on your behalf when you are not capable of doing this yourself.
It is essential today that you have a trusted friend or family member appointed to make medical, dental and lifestyle decisions for you in the event you lose cognitive decision making ability (severe stroke, Parkinson's Disease, Alzheimer's etc.). If you are diagnosed with a condition from which you will permanently lose cognitive decision making ability you may make an advanced health care directive by which you proscribe future medical treatment.
"Jean's mother had suffered an advanced form of Alzheimer's and lay in a nursing home in a vegetative state for six years prior to death. With imminent signs that she had that same disease, Jean signed an advanced health care directive that all nutritional feeding was to be stopped and that she was to be given palliative care to die naturally."
Jean was not authorising euthanasia but was exercising her common law right to set out in writing her future health treatment.
Estate Planning is sometimes the poor cousin of Investment Planning, but clearly a very important aspect of your overall financial planning affairs. We encourage you to ensure this aspect of your affairs is in order and up to date.
Principal - Stoddart Legal
Estate Planning Specialist
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