Your assets also need to be protected from claims by outside parties such as the Government and from losses through lengthy court battles where disputes between family members and others arise.
What is a will? A will represents your instructions on how you wish to distribute your net wealth when you die.
In most cases, people will leave most of their estate to their spouse, but may leave specific items to others or to organisations such as charities.
Creating a will is both simple and complicated.
It's simple because for most people it doesn't take much effort to create a conventional one, but it gets complicated if you don't follow strict procedures that end up rendering the will useless or unclear.
Despite being easy to do (with a kit available from the newsagent including forms and instructions, you can do your own), many people put off completing a will because it forces them to look their mortality and their relationships square in the eye.
Families have been known to endure 20 years of feuding over the ownership of trivial things like who got grandpa's antique cuckoo clock.
Along with your will, it's best to include a listing of your assets and provide instructions on how they will be distributed.
A will commonly contains a few important elements:
- Identification - Naming the willmaker and their address;
- Revocation - Revoking any previous wills;
- Executor appointment - Naming the person who will manage the distribution of assets;
- Special bequests - Identifying the distribution of specific assets to named recipients;
- Residual estate distributions - Identifying the distribution of remaining assets (after recognising special bequests) to named recipients;
- Additional requests - Such as instructions for the disposition of the body, donation of organs and other special instructions; and
- Attestation and witnessing - Where the will maker and witnesses sign and date the will.
Beyond the physical process of making a will, it's important to communicate your intentions to others.
This applies especially to your executor and to prospective guardians, so that they agree to the task and know how to find your will and what to do in the event of your death.
It's also important to keep your will up to date, especially after your marital or family status changes, or where there is a significant change to your net wealth position (such as after buying or selling a property).
Most important, however, is to seek professional advice regarding the best way to manage your estate and the creation of your will.
What if I don't have a will? If you don't have a will and you die, you are considered to die "intestate".
There are special rules governing the distribution of assets under this arrangement, which are determined in each case through the probate division of the Supreme Court.
In almost all cases ownership of your net wealth will pass to your spouse, or if you aren't married, down through your family line in a strictly defined process.
If no close direct relatives can be found, the money goes to the Government.
Each State has variations to this approach, such as the treatment of assets when an individual dies intestate, but has a de-facto or same-sex relationship.
What is a family trust? A family trust is a structure established for you and your family by your accountant and legal professional.
It enables you to transfer assets out of your name while still retaining control of the assets.
Family trusts are usually most appropriate for those who hold considerable assets in addition to superannuation.
One of the most important benefits of a family trust is that it distributes family assets in a tax-effective way.
For example, capital gains tax can be avoided, and income can be split more effectively.
A family trust also protects your assets from creditors in the event of bankruptcy.
Creating and maintaining a family trust involves set up and administration costs.
There are also risks that the Government may set limitations over some of the structure's current tax benefits.
You will need to get professional advice to decide if this is the best approach for you.