Everybody dies, but many people may own several significant assets that they may want to pass on to their loved ones or other chosen beneficiaries. In this case, estate knowledge and planning are helpful.
The problem is, this topic may also be subject to misinformation that can prevent someone from planning their estate distribution well. They may even end up putting more financial burdens on those they leave behind. It’s time to clear some of the most common misconceptions about estates in Australia.
1. Only Older People Need Estate Planning
This is false. Estate planning can happen at any point in a person’s life, and it can be an ongoing activity as wealth can change over the years.
While there’s no general guideline on when one should consider estate planning, the best time is when an individual acquires an asset, such as a house and/or land. Those who are beginning to invest or earn more income should also consider it, as well as those who may be the head of the family.
This means that a person as young as twenty years old can already engage an estate planner. In fact, they can look for someone who also specializes in financial planning. This way, they can best protect their assets even after death and at the same time learn how to grow their investments and income while they are still alive.
2. Dead People Don’t Need to Pay Taxes
To attract migrants, the government abolished inheritance, gifts, and estate taxes in the 1970s. However, that doesn’t mean that the deceased (or the legal representative) and their beneficiaries don’t have anything to settle with the taxman.
According to the Taxation Office, the legal representative may still need to lodge a tax return if the deceased still has some withheld tax from their income. Filing a return is also necessary if the deceased assets earned interests or dividends or the taxable income is more than the tax-free threshold.
The office may also levy taxes depending on the assets distributed. For example, if the beneficiary decides to sell the real property, such as a house, they may need to pay capital gains tax.
There’s also a corresponding tax rate on the super death benefits. However, the amount can vary depending on factors such as whether the super is an income stream or lump sum or if the beneficiary is a recognized dependent under the taxation law.
3. Wills Are Enough in Estate Planning
A will can go a long way in preventing disputes among beneficiaries and heirs, but they are not the only focus of estate planning. The other components depend on the person’s goal before and after death:
- One may need a special needs trust if your potential beneficiary has a legal disability or already of old age and may not be capable of making sound decisions for themselves. Not all legal professionals can help with this. They may have to search for attorneys specializing in elder law and special needs.
- For those concerned about their health, they may have to create different advanced healthcare directives. For example, a living will allows the individual to determine their preferred treatment plan if they ever become sick and incapable of making decisions for themselves. Meanwhile, a health proxy provides authority to the chosen person to decide on behalf of the patient.
- People with assets may also appoint an executor or administrator of the asset, trust, or will. They don’t need to be an immediate family member.
- Estate planning may also discuss life insurance policies, which the individual may want to use to pay off debts related to the estate.
Note too that having a will doesn’t make one escape probate. Contrary to what many people think, probate is a normal process that happens after someone died, leaving behind an estate or asset regardless of whether they have a will or not. In fact, a probate is necessary to determine the validity of the will and the chosen administrator or executor.
However, a will can make a probate process easier and faster. The sooner the beneficiaries or the administrator can receive the grant of probate from the court, the quicker they can dispose of the assets, pay off debts, and help the bereaved family move on.
Estate planning can be a grueling process, and it can last for years as long as the person accumulates wealth. However, it is essential to ensure that the right people receive their dues, those with special needs get left behind with enough financial support, and families avoid fighting over inheritance.