One of the most common mistakes is a misunderstanding of beneficiary nominations. Nowadays, many assets are transferred at death through superannuation funds, life insurance policies and annuities.
The owner of those investments or insurances (the person who set them up) will often have nominated a particular person(s) to receive the benefits of them, once the owner has died. This is a separate & binding contract which can bypass the owner’s legal Will.
Many people don’t appreciate how important it is to get the designations of those nominated beneficiaries right. I typically see beneficiary nominations where at the start of the marriage each spouse nominates the other as the sole nominated beneficiary for the super & the life insurance. Unfortunately most people forget to keep their binding nominations up to date. They forget to add the children, or only add some of them, leading to unintended consequences & heartache.
Similarly, if a child dies, most people would want that share to go to that child’s children, ie to the descendants, down the bloodline to the deceased child’s children. Sadly many people get this wrong, and end up accidentally disinheriting their grandchildren.
And you can’t necessarily rely on “common sense” to sort it out after your death. Unfortunately, there’s little consistency within the financial-services industry. If the insurance plan administrator or superannuation trustee doesn’t know how to handle it, your family will be the ones paying to sort it out.
And that could get expensive, especially if there are minor (under 18 years old) children involved, as they cannot legally own assets outright. There will have to be a Court-appointed trustee for each minor, and possibly a Guardian as well. But it can be a lengthy and expensive process to go to court (or the Guardianship Board) to get a guardian or trustee appointed, and then the costs of administering those assets until the child is 18 years old can really eat into the inheritance.
Unless specific advanced tax-planning strategies are being pursued, for most people it may be safer & simpler to nominate their own estate as the sole beneficiary of their super and life insurances, and then to specify in their legal Will to determine who gets what. Then when circumstances change, they only have to change the one document.
Another pitfall example relates to individuals with special needs or disabilities. Sometimes, one of the worst things you can do is leave an inheritance outright to such an individual. Many government entitlements are either not available to them until they use up their own resources, or if they receive an inheritance and they have been receiving public resources, those governmental agencies have the right to take those assets back for payment of benefits that they have already provided. One solution is that you can draft your documents to set up a special needs trust, and it does not go outright to this particular individual. The funds are managed by an independent trustee who can pay for certain things that are spelled out in the trust agreement (frequently accommodation, health & care needs and education expenses). The trust may be set up in such a way that they are not considered the assets of the disabled individual. However this is a rapidly evolving area, where the government has a strong interest to limit public expenditure in an era where massive numbers of Australians are reaching retirement age, and living longer than ever. The demands upon public health, aged-care and accommodation services are increasing exponentially, so it would be prudent to do all we can to protect & provide for ourselves and our families.
Rod Genders is a senior Australian lawyer specialising in accident compensation and estate planning in Adelaide. His boutique specialist law firm is one of the oldest and most respected in Australia – visit it at www.genders.com.au . Rod is also a prolific author and speaker. Some of his articles and books on Wills, Probate, Trusts, Estate Planning, Asset Protection and Retirement Planning may be found at www.genders.com.au/adelaide-lawyer-blog.