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Avoiding common mistakes with wills

DO you have a will? If so, is it up to date? While many people will answer ‘yes’ to the first question, most of these will reply in the negative to the second.

In fact more than 40 per cent of Australians die intestate (ie without a will). And many people fail to update their will to reflect changed circumstances, such as new assets, a divorce or the birth of a child.

Perpetual national manager of financial planning, Steve Davis, believes the vast majority of Australians do not have a will that reflects their current intentions.

Nor do most people understand the complications that can arise. For instance, a de facto spouse is not automatically entitled to your estate. A divorced former spouse could still inherit your assets because a divorce does not automatically cancel a will in WA (although a new marriage does).

With more than 100 years’ experience in the field, Perpetual has observed a number of common mistakes in estate planning.

These include a failure to account for the impact of debts and tax on the ‘net’ value of assets.

For instance, a person may bequeath life insurance proceeds of $400,000 to one child and a $400,000 investment portfolio to a second child. But if the portfolio has borrowings of $100,000, the second child would receive a lesser payout.

Similarly, one child may be left a holiday home and a second child the family home. Their value may be similar, but only the holiday home would be subject to capital gains tax when sold.

One way of dealing with tax issues is to establish a testamentary trust.

This type of trust also can be used to set aside money for children.

Complications often arise when people try to cut costs by preparing their own will. For instance, the wording may be ambiguous and open to dispute. Or the executor may not be given adequate powers, such as the power to sell assets or make investment decisions on behalf of minors.

Another common mistake is a failure to clearly explain that you want to leave someone out of your will. This will not preclude that person from lodging a claim, but it means they cannot argue that they have simply been overlooked.

Beneficiaries (or their spouses) should not be used as witnesses to your will, nor should they be appointed as executor. This could create a conflict of interest, for instance, if a business partner wants to buy your share of the business.

The executor is the person nominated to carry out the instructions in your will. They should have the time, motivation and capacity to properly complete the role.

Generally they also should be younger than you – it is not uncommon for an appointed executor to die first.

Instead of appointing a relative or friend as executor, an alternative is to appoint a solicitor or a trustee company (see next article for fees).

This provides assurance that an independent expert will be responsible for administering the estate.

Yet another common mistake is the practice of bequeathing assets not owned by the testator. This occurs when assets are held by a family trust, a company or partnership.

Conversely, people may incorrectly assume that their superannuation will be part of their estate. That is generally not the case. The trustee of the super fund will decide how your accumulated savings, as well as the life cover that most super funds automatically provide, will be distributed.

Last, but not least, make sure that your executor knows where the will is stored.

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