For this edition of the Ledge Q&A we spoke to Heather Moore, Associate Director and in-house tax advisory specialist at NKH Knight. We explored Estate Planning and the necessary steps that should be taken to ensure people and businesses protect their wealth.
Q: Who is NKH and what is your role?
A: At NKH Knight we partner with you to achieve financial success. With services and advice from across our three businesses of business advisory and accounting, financial advisory and self-managed superannuation services, we support you in creating and protecting your wealth. I am an Associate Director with NKH Knight and our in-house tax advisory specialist. I am also an accredited Family Business Adviser and have been providing business, structuring and tax advice to business owners and investors since 2006.
Q: What is Estate Planning and who should have an Estate Plan in place?
A: An Estate Plan is a plan that you put in place while you are still alive and with full mental capacity to ensure that the wealth you have accumulated is dealt with in accordance with your wishes in the event of your death or incapacity. I believe that everyone who has something to protect should have an Estate Plan.
Q: What’s the difference between Estate Planning and Succession Planning?
A: You hope to see through the implementation of your succession plan however it is likely you won’t be around to see your Estate Plan implemented! Succession Planning is the strategic process of identifying and equipping key individuals within a business who will take over when the current leaders exit. It is an ongoing exercise which should ensure the smooth transition of leadership and potentially the ownership of a business. Estate Planning deals with the transfer of your wealth when you pass away or become mentally incapacitated. Succession Planning is crucial to ensuring the value of a business you own is maintained. The value created by the business is likely to form a large part of the individual owner’s wealth which is dealt with through the Estate Plan.
Q: What documents may be included in an Estate Plan?
A: It will vary – for example an Estate Plan for someone with an investment trust may include her personal will, provision for one or more testamentary trusts within her will, a letter of wishes to guide the trustee of her discretionary trust, enduring power of attorney to govern how her financial affairs would be managed in the event of her mental incapacity and an enduring power of guardianship (EPG) and advanced health directive (AHD). The EPG authorises a person of your choice, to make important personal, lifestyle and treatment decisions on your behalf should you become incapable of making such decisions yourself. The AHD is a legal document that enables you to make decisions now about the treatment you would want – or not want – to receive if you ever became sick or injured and were incapable of communicating your wishes.
Q: Are assets taxed when passed on?
A: Luckily in Australia there is no inheritance or estate tax unlike many countries such as the UK and Ireland. Generally, capital gains tax (CGT) will not apply when you inherit an asset however it may apply if you dispose of an asset that you had inherited. There are specific rules relating to the CGT treatment for assets which are passed on through inheritance along with special income tax rules for estates. I would recommend that you seek advice from a specialist tax advisor if you are dealing with the assets of an estate to ensure that you are fully tax compliant and that you can administer the Estate in the most tax efficient way possible.
Q: What happens to our superannuation when we pass on?
A: Many people do not realise that super does not form part of your Estate and is not dealt with under your will. When a member of a superfund dies the death benefit, (the member balance of the deceased person) is held by the trustees of the super fund to be distributed at the discretion of the trustees or in accordance with a valid binding death benefit nomination, if there is one.
A binding death benefit nomination allows a member to specify the recipient of their death benefit. A member can only nominate a qualifying dependant or their estate to receive their death benefit.
The tax implications for the beneficiary of the death benefit will vary depending on various factors – whether the beneficiary is a qualifying dependent of the deceased, how much of the death benefit funds were subject to tax within the fund, the age of the dependant, and the age of the deceased. The potential downside to a binding death benefit nomination is that they lack flexibility and can result in death benefits being paid out in an ineffective tax manner.
Q: Who benefits from having an Estate Plan and would you recommend it to all business owners?
A: I recommend that not only all business owners but anyone accumulating wealth has an Estate Plan. It should not be a case of waiting until you have reached a certain target wealth or age. Your Estate Plan should be a dynamic tool that is reviewed regularly and changes to suit your current position. It can start off with just a simple will to cover your personal property. It can then grow to facilitate a more sophisticated wealth management structure, involving multiple types of entities such as companies and trusts. It is not just about planning for what happens to your property after you pass away, it is also about planning for what happens to you and your property if you become mentally incapacitated.
Q: What is your Top Tip for Estate Planning
A: Estate planning is not a DIY project! Preparing your own will and estate planning documents is not advisable. These documents must conform to strict legal requirements otherwise the Courts may decide that they are not valid. Furthermore, you may not create a framework which will provide your beneficiaries with the most protected and tax effective structure through which to take over the wealth you are transferring. Depending on the complexity of your affairs your estate planning may require the assistance of several experts working together including a tax professional, a financial adviser and an experienced estate planning lawyer.
If this edition of the Ledge Q&A has sparked any questions, please contact your Ledge Finance Executive directly, or contact our offices here.
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