It’s often not something that you want to think about, what happens if you were to pass away prematurely. It’s a conversation that is pretty hard to have but one that is important to discuss. We always hope that it never happens but as planners, this is one of the most important conversations we can have with clients, especially with those that have just had children.
Getting a proper estate plan doesn’t have to be a long and super expensive process but it’s something that is vital if you have children. Whilst we would never recommend it, even having a post office style will kit is better than having nothing. The important thing is that both parents discuss what they would like to happen and then have something in place for these wishes to be carried out.
Guardianship is likely one of the most important decisions you’re ever going to have to make. As I said at the start, it’s not something you want to think about but we always need to plan for a worst case scenario. A legal guardian is an adult designed to care for your minor child in the event both parents die before your child reaches adulthood.
Having a will and proper guardianship in place is crucial as without it, the likelihood is that there could be multiple people from both sides of the family wanting to look after your children and then potentially a lot of long and expensive court battles to sort it out and no one wants that.
To appoint a legal guardian you must name the person (or persons) as the chosen guardian in your will. Obviously make sure you have a chat to the person you are thinking of choosing first to make sure they are willing to take this on as it is a big responsibility and not always nice to give someone that news as a surprise after your passing. You may also wish to provide alternative guardians in your will if your first choice is unable or unwilling to take on the role at the time of your passing.
Another important reason as to why you need a will once you have children is that you will need to set up not only that your assets will likely go to them but how they will receive the funds. It’s likely that if you were to pass away prematurely you might not want your children receiving all the funds at age 18, as a lot of people are now opting for an older age or choosing for the children to receive an income from the funds rather than a lump sum.
A lot of people are now opting for testamentary trusts in their wills. Testamentary trusts are created via a will to provide a greater level of control over the distribution of assets to beneficiaries. This provides an amount of ‘control beyond the grave’ so to speak.
Another reason why more and more parents are liking the idea of a testamentary trust is from an asset protection perspective. If your child is currently in a de facto relationship or married or could potentially be in one in the future and you pass away without setting up a testamentary trust, then your estate forms part of their marital pool. This means that if there is a relationship breakdown, your assets will form part of the financial settlement. A testamentary trusts assets are excluded from this and therefore stay in the family blood line.
The best solution is to always go and see a lawyer to get a proper estate plan in place. They’ll be able to discuss with you your needs and wants and give you advice about how the will should be done and then put this into action. Costs can vary amongst different law firms so it doesn’t hurt to check out a few and see what option suits you best.
There are also plenty of online tools that you can use to start to think about a few of these things that we have discussed before going in for an appointment with a lawyer and doing some homework before can also save some money as a lot of lawyers charge in 6 minute increments so you want to have thought about these things before you get asked them in the appointment. If you want access to any of these worksheets, shoot me an email and I’ll be happy to forward them on!
As I said at the start, no one wants to think about leaving our child in a world without us but sometimes this can happen and we need to have a proper estate plan in place for their benefit. It doesn’t have to be super complex or take long but it needs to be put in place very soon if you don’t have one, to make sure that your wishes are carried out after you are gone.
Zac is a qualified financial planner at Pekada and host of the Wealth Collective Podcast. Living in Melbourne, Zac has six years of experience in advice and specialises in wealth accumulation and protection strategies. He loves to keep his finger on the pulse for the best strategies for wealth accumulators looking to build and protect their wealth tax effectively. Zac has been featured as an expert in Money Magazine.