You might be one of the many that acknowledge the importance of having an up to date will however have not had the time, advice, or motivation to take action.
Having an up to date will is an essential component of having an up to date estate plan. An estate plan is multi-dimensional and requires consideration of much more than technical financial issues but also matters of the heart and your “Why” in life.
Estate planning is one of the most important and valuable issues to consider for your family. Here are 10 reasons why estate planning is important:
Why Estate Planning Is Important
- Baby Boomers
Due to our aging population in Australia, it is estimated that $407 billion dollars worth of property ownership (Bankwest Financial Indicator Series Report 2010)will be transferred to the next generation over the next fifteen years. All this will be taking place when statistics suggest that less than 60% of the population has a valid will (NSW Trustee and Guardian). This is the first generation in Australian history to be passing on such a high level of wealth. The generation receiving the wealth in turn will have further financial decisions because their own children are facing increasingly high costs of housing and education.
- Legacy Planning
To successfully transfer wealth from one generation to the next requires more than comprehensive tax, estate, and financial planning strategies to be in place. Legacy planning involves preparing your beneficiaries for their inheritance and transferring family values as well as family wealth.
The time at which your beneficiaries receive their inheritance can have a major impact on their lives. Careful consideration needs to be given to when you will leave your assets to them and each decision will depend on your own family circumstances.
The amount of wealth you leave to your beneficiaries will also depend on your family circumstances. Some of your beneficiaries may have greater needs than others and the concept of fairness versus equality needs to give a lot of thought. In some instances leaving all your wealth to them may more harmful than leaving a smaller amount. Considerations such as leaving a portion of your wealth to charity need to be balanced out with how much to leave to your beneficiaries.
An ideal estate plan will allow flexibility to minimize the impact of taxation and also to protect assets for your beneficiaries. Finding the right combination of flexibility and asset protection is important. If your estate plan is too restrictive and does not allow your beneficiaries enough flexibility to live their lives in the way they wish to, the estate plan may be challenged.
The estate planning process involves a review of the potential tax issues associated with transferring assets to the next generation. With planning, the impact of tax issues can be reduced and greater wealth able to be transferred to beneficiaries.
- Asset Protection
In reviewing your estate planning objectives you are able to assess how assets should be owned for the purposes of succession and also asset protection. The review process generally uncovers exposed assets, which can then be passed securely to the next generation and be protected from creditors and third parties.
- Modern Families
Increasing divorce rates, more blended, and intergenerational families mean that well thought out estate planning is required to keep the family dynamic as harmonious as possible.
- Estate Disputes
There have been several high profile court cases involving estate disputes but there is a greater number of low profile instances that have proved costly to the families concerned. With proper estate planning, these disputes can be avoided. The financial and emotional cost involved in settling an estate planning dispute is far greater than the cost to prepare and update an estate plan on a regular basis.
- Business Succession Planning
The 2014 Family Business Survey by PWC shows that 1.4 million family business owners are planning to retire over the next 10 years; 38% of family businesses are planning to sell or float their business and 24% plan to pass it on to the next generation. However, only 8% of family businesses have robust succession plans in place (source: 2014 Family Business Survey by PWC).
If any of the above estate planning issues concern you, I recommend that you make a start on updating your estate plan as soon as possible. You can then plan the next stage of your life with the knowledge that your financial affairs will be in order and you preserve your family story for multiple generations.
For further tips on the importance of why you should update your will, download the attached ebook “Why you need a Real Life Estate Plan” or listen to the “Real Life Financial Planner”, Geoff Ivanac on our retirement podcast, “Real Life Retirement Radio”
General Advice Warning: Any advice on this site is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making any decisions.