There’s this taboo about estate planning that keeps some people from recognising the importance of it. At its core, estate planning is about providing for your loved ones after you’re gone. This includes making sure they’re taken care of financially and emotionally.
Legal jargon can be intimidating to digest and it’s easy to get overwhelmed. But it’s important to understand the differences between estate planning, wills and trusts. In this article, we’ll discuss the differences between these three concepts and why it is important to get them in order.
Definition And Importance Of Estate Planning
Estate planning is the process of organising and managing your assets during your lifetime and determining what should happen to them after you pass away. It involves creating a plan that helps ensure your wishes are carried out, while also minimising taxes and legal fees.
No one wants to think about what will happen after they’re gone. It’s not exactly a fun topic to ponder. However, estate planning is extremely important for a number of reasons.
For one, it allows you to maintain control over your assets and ensure they go to the people and causes you care about. Without a plan in place, the government may step in and determine how your assets are distributed, which may not align with your wishes.
Estate planning is also crucial for protecting your loved ones. If you have minor children, you can use estate planning to appoint a guardian to care for them in the event something happens to you. It can also help your loved ones avoid the costly and time-consuming process of probate, which is the legal process of settling an estate.
Definition Of A Will
A will is a legal document that specifies how a person’s assets should be distributed after their death. It allows a person to appoint an executor to handle the distribution of their assets and a guardian for their minor children.
It is important to have a valid will in place in order to ensure that your assets are distributed according to your wishes and to avoid any unnecessary complications or disputes.
Estate planning can be a good option for those who want to consider all of their options and create a comprehensive plan for managing and distributing their assets.
Under Australian law, there are certain requirements that must be met in order for a will to be considered valid. These requirements include:
- The will must be in writing.
- The will must be signed by the testator or testatrix (the person making the will) in the presence of two witnesses.
- The witnesses must also sign the will in the presence of the testator and each other.
Be careful not to have any beneficiary act as a witness to the will otherwise they may lose their entitlement to your intended gift or bequest.
It is recommended that a will be prepared by a solicitor in order to ensure that it meets all necessary legal requirements and accurately reflects the testator’s wishes.
Keep in mind that a will only covers assets that are owned solely by the testator. Assets that are held jointly with another person (such as real estate owned by a couple) or assets that have a designated beneficiary, such as a life insurance policy or superannuation account, are not typically subject to the provisions of a will.
Definition Of A Trust
A trust is a legal arrangement in which one person, the settlor, transfers ownership of their assets to another person, the trustee, to hold and manage for the benefit of a third party, the beneficiary. Trusts can be used for a variety of purposes, such as minimising taxes, protecting assets, and providing for loved ones.
There are several different types of trusts that can be used in Australia, including most commonly discretionary family trusts which are often used to protect family assets.
In order to create a trust in Australia, the trustor must transfer ownership of the assets to the trustee and specify the terms of the trust in a written document, known as the trust deed. The trust deed must also identify the beneficiaries of the trust and the purposes for which the trust assets can be used.
Comparison Between Estate Planning, Will, And Trust
Estate planning, wills, and trusts – three terms that may sound about as exciting as watching paint dry, but bear with me. These concepts are actually essential tools for ensuring that your loved ones are taken care of and your hard-earned assets are distributed according to your wishes after you pass on.
Think of estate planning as the umbrella term that covers everything from creating a will, to setting up a trust, to making arrangements for enduring powers of attorney and establishing advance health directives. It’s like putting on a raincoat before heading out into a storm – you may not necessarily need it every day, but it’s always good to have just in case.
A will is like a road map for your assets after you pass away. It specifies where you want your stuff to go when you’re no longer around to enjoy it. Without a will, it’s like trying to navigate a road trip without a GPS – you might end up somewhere you don’t want to be.
And a trust? A trust is like a personal assistant for your assets. It allows you to delegate the management and distribution of your assets to someone you trust (see what I did there?). Trusts can be a bit more complex and expensive to set up than wills, but they offer more control and flexibility in terms of asset management and distribution. It is often set up for financial and or tax reasons and we would always recommend getting good advice from your accountant or tax adviser when creating a trust.
So, which one is best for you? Well, that ultimately depends on your individual circumstances and goals. A will may be a simple and relatively inexpensive option for those with a relatively small and straightforward estate. For more complex estates or where there may be a need to protect assets for or even from beneficiaries it may be worthwhile to create a trust within the will. These are called testamentary trusts and need careful planning if they are to do as intended.
Estate planning can be a good option for those who want to consider all of their options and create a comprehensive plan for managing and distributing their assets.
Final Thoughts
Don’t let procrastination be the death of your asset distribution plans (pun intended). Don’t leave your loved ones in the dark – take the time to think about your wishes and put them in writing. You don’t have to figure it all out on your own, either – we at Arbon Legal Group can help guide you through the process.