Do you need an estate plan? Here’s why it’s important

Estate planning is often seen as a thorny issue many delay until it is too late. The perceived lack of urgency in making a will, along with the complexities of distributing assets, leads many to put it off.

Yet, with $4.9 trillion set to be passed down in Australia over the next decade, a clear estate plan has never been more important for securing financial stability and building generational wealth.

Beyond a will: What estate planning covers

Creating a successful estate plan requires more than drafting a will. While a will determines how assets are distributed after death, it does not cover everything. It won’t assist in cases of incapacity, nor does it manage assets held in trusts or superannuation.

That’s where an estate plan comes in—it provides a clear strategy for managing financial and personal matters. It ensures wealth, assets, and responsibilities are handled according to personal wishes in case of incapacity or death. This typically includes creating a will, setting up powers of attorney, making medical care decisions, and planning for assets held in family trusts or superannuation funds.

Creating an estate plan: Key considerations

A well-structured estate plan isn’t just about passing on wealth. It also helps reduce unnecessary taxes, avoid legal complications, and guarantee assets are distributed to beneficiaries with minimal tax liability.

Keeping an estate plan relevant over time is just as important to maintain its alignment with financial goals.

Here are a few things to keep in mind:

1. Updating financial and legal documents

It’s easy to overlook beneficiary designations, but superannuation and life insurance accounts often bypass an estate and go directly to named beneficiaries. Life changes like divorce or having children can shift priorities, and outdated details may lead assets to unintended recipients.

An outdated estate plan can cause disputes and misdirect assets. Regularly reviewing financial and legal documents and assigning trusted individuals, such as powers of attorney, ensures everything stays up to date according to the preferences.

2. Reviewing insurance coverage

Insurance policies that pay out a large benefit amount can be valuable tools for estate planning. For example, life insurance can provide a financial safety net.

However, over time, circumstances may change, and additional coverage might be needed. Reviewing policies ensures they still provide the right level of protection and help cover estate expenses such as taxes and debts.

3. Understanding asset ownership

Not all assets are treated the same in an estate plan. The way property is owned—whether as joint tenants or tenants in common—affects how it is passed on. Assets held in superannuation or trusts follow separate rules and may not be included in a standard estate plan.

Understanding which assets are part of the estate and which are not ensures that wealth is distributed as intended.

4. Minimising taxes through better planning

Without proper planning, taxes, and legal fees can significantly reduce the wealth passed on to beneficiaries. Structuring an estate in a tax-efficient way, such as using trusts or strategic gifting, can help maximise assets while minimising tax burdens.

Trusts offer multiple benefits beyond tax savings. They can protect assets in cases of bankruptcy or divorce, ensure financial support for children with disabilities, and secure inheritance rights. Additionally, assets held in a trust are often shielded from legal claims, preserving them for future generations.

Gifting can also be an effective estate planning strategy. Strategic gifting during one’s lifetime can help reduce the taxable estate and lessen the financial burden on heirs.

In addition, timing gifts before assets are appreciated can also reduce capital gains tax while taking advantage of tax-free thresholds ensures wealth is transferred efficiently.

The role of SMSFs in estate planning

A Self-Managed Super Fund (SMSF) offers greater control over how superannuation balances are distributed, making it a valuable estate planning tool.

Unlike public super funds, SMSFs allow death benefits to be paid as a pension instead of a lump sum, preserving the fund’s investment portfolio and extending its lifespan. This not only provides financial stability for dependents but also helps minimise tax obligations.

Another advantage is the ability to transfer non-cash assets, such as property or shares, directly to beneficiaries. With up to six members, SMSFs can also be an effective instrument for intergenerational wealth planning.

Estate planning costs and challenges

While not having an estate plan can lead to unnecessary taxes, legal disputes, and delays—often resulting in higher costs—creating one also requires careful planning. Legal and financial advice, particularly for trusts, tax strategies, and probate fees, can be expensive.

Beyond the financial aspect, estate planning also takes time and involves complexity. Gathering legal and financial documents, assigning powers of attorney, and structuring asset distribution require attention to detail. Additionally, tax policies, inheritance laws, and superannuation rules change over time, making regular updates essential to avoid financial complications.

Keeping the estate plan relevant and effective

There is no one-size-fits-all approach to estate planning. Every situation is unique, shaped by personal circumstances, family dynamics, and financial goals. What works for one person may not be right for another, which is why a customised plan is essential.

While estate planning may seem overwhelming, taking proactive steps—such as having conversations with family, organising assets, and reviewing plans regularly—ensures everything remains aligned with changing circumstances.

By keeping track of assets and updating the estate plan as needed, investors can maintain financial stability and secure generational wealth for the future.

Disclaimer: This article is prepared by Ankita Rai for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.