There is no denying recent traumatic events, such as natural disasters and COVID-19, do not discriminate in their victims and no matter what stage of life you are at we are all vulnerable. Despite us all being exposed to these events, there is an undeniable trend - very few of the younger generation (those less than 30 years of age) have any form of an estate plan in place. Many young people either think they are not vulnerable or think they do not have enough ‘wealth’ to make it worthwhile putting a Will in place. The reality is that this is far from the truth. Estate planning (managing your asset base in the event of your incapacitation or death) is necessary for every adult.
Rather than discussing life expectancy statistics in length, as a starting premise, we should accept that all people, irrespective of age, have a degree of vulnerability. Once we accept this we overcome the first hurdle of realising we all need a Will. Dying without a Will is called intestacy. The rules around intestacy differ under various state and territory legislation.
An intestate estate will commonly be divided up between the surviving married or de facto spouse and children. If there is no immediate surviving family, the assets may be allocated to other family members, including parents, grandparents, aunts, uncles, cousins, or charitable organisations.
There are some key elements to most estate plans – property, superannuation and insurance.
Many younger Australians still pursue the Australian dream of homeownership, and while residential property prices within capital cities continue to rise, there is still a large number of people between the ages of 20 and 30 who are entering the property market without an estate plan.
A large group of people in the 20 to 30 year age gap entering the property market are couples. Generally, these couples are not married but are considered to be in a de facto relationship, with a significant portion of the funding for property likely to be provided in the form of traditional bank debt.
A property is often an individual’s most significant asset and liability, while simultaneously being their most significant asset to be shared. It is important to note at this stage in life the bank loan is likely based on two people’s income in order to service the debt.
In addition to the above, it is important to understand the difference between joint tenancy and tenancy in common.
Joint tenancy pertains to property ownership where each party on the title to the property holds an individual interest in the property. For example, a house owned by a married couple as joint tenancy means when one of the joint tenants dies, the interest of the deceased joint tenant automatically passes to the surviving joint tenant or tenants and does not form part of the estate of the deceased.
Tenancy in common, on the other hand, refers to ownership over a certain property by parties who do not automatically have a right of survivorship (for example, friends or siblings). They are co-owners of the property. However, their shares and interest over the property do not have to be equal and depend entirely on the agreed shares of the parties. In a tenancy in common arrangement, if one of the parties dies their interest in the property forms part of the deceased’s estate and does not automatically pass on to any co-owner of the property.
What this all means is when you purchase a house and take out a mortgage, an estate plan needs to be put in place that is cognisant of assets such as property to ensure they are directed to where each party intends them to be directed to. In addition, when acquiring a property with someone you should think critically about whether this property will be acquired as joint tenants or tenants in common.
Superannuation and insurance
Insurance within super is often overlooked when preparing an estate plan. More importantly, superannuation benefits are not automatically included in a deceased’s estate to be dealt with under their Will.
There are a number of available options you need to be aware of. You should consult your superannuation fund or BDO adviser to ensure your superannuation death benefit ends up where you want it upon your death.
Most industry and retail superannuation funds automatically provide a level of death and total and permanent disability insurance. Generally, for younger people, the insurance cover may be significantly more than their actual superannuation account balance.
For most young people, the likely beneficiary of their superannuation proceeds (including insurance) upon death is generally their parents, at least until they commence to cohabit with a partner.
However, a parent does not necessarily meet the definition of a dependent for superannuation purposes. That being said, your superannuation can be paid to your estate, where it can be distributed according to your wishes set out in your Will.
Estate planning is not something you should ‘set and forget’. Everyone older than 18 years should revisit their estate plan regularly with their legal, financial and superannuation advisers, particularly when their circumstances change or they are planning a change, e.g. buying a home, moving in together, marriage, or having children.
Likewise, you should revisit your estate plan should your relationship break down and most certainly as your children reach adulthood.
If you require support to establish or review an estate plan, please contact a BDO Adviser today.
The information contained in this article is purely factual in nature and does not take into account your personal objectives, financial situation or needs. It is provided as an information service only and does not constitute financial product or other professional advice and should not be relied upon as such. Before making any investment or financial decisions you should consider your particular objectives, and financial circumstance or needs. Where information relates to a particular financial product you should obtain and consider the relevant Product Disclosure Statement and obtain advice from a financial adviser before making any decision. If you do require financial advice, please contact the relevant BDO member firms in Australia who will be able to assist you in their capacity as an Australian Financial Services licensee. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not give any warranty as to the accuracy, reliability or completeness of information contained in this article nor do they accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it, except in so far as any liability under statute cannot be excluded.