Getting Your Financial House in Order: A Guide to Wills, Power of Attorneys and Reversionary Beneficiaries

Getting your financial house in order is one of those things we tend to put off, knowing that it is important, but never that urgent. However, having your finances in order can give you peace of mind and help you focus on what’s important. Here’s everything you need to know to make the most of your financial position, both now and in the future.

1. Know the why, what, who and when

Before thinking about how or where to direct your assets, step back and think about what you are trying to achieve. Do you want to:

  • Outline how your assets are bequeathed in the event of your passing?
  • Determine who controls your assets if you are otherwise incapacitated.
  • Ensure financials are used appropriately, or given at a particular period in time.

Work out what you are trying to achieve, and then determine who you will direct your assets to, how much and when. Once you have made these decisions, it’s time to consider the mechanisms to achieve your desired outcomes.

2. Create a will

Establishing a will is the backbone of getting your financial house in order. While we anticipate long, happy and healthy lives, the unexpected can happen. In the event of your death, a will is an important document, not only for outlining how your assets are bequeathed, but will help avoid unnecessary confusion and heartache as your loved ones take the time to mourn your passing.

Consider the consequences

How you direct your resources in the event of death can have significant consequences on those involved. Consider:

  • How you want your assets to be bequeathed.
  • The impact of your decisions on those closest to you.
  • Your expectations as to how your assets will be used.
  • Any promises you may have made to those closest to you.

The basics of making a Will are pretty simple. You must be over 18 and you need two witnesses to witness you sign the document. Without witnesses, the document may not be legally binding.

How does a Will work?

A will outlines how your property and assets are divided in the event of your death. To do this, an executor is appointed. The executor:

  • Collects your assets
  • Pays off your debts
  • Distributes your assets in accordance with your Will.

How to know if your will is valid

A valid will meets the following conditions:

  • Signed in the presence of two witnesses.
  • Signed with testamentary capacity (over the age of 18 and able to understand what you are doing).
  • Your wishes are in writing (you can’t just tell someone what you want them to do verbally).

A will is important, and if you don’t have one, you should start the process sooner rather than later. But it’s not the end of estate planning – there are also other things to consider.

3. Power of Attorney

A will details what should be done with your estate in the event of death. By comparison, Power of Attorney provides another person(s) the ability to act on your behalf should you be incapacitated but still alive.

Generally, it’s prudent to have your financial and medical powers held by your spouse and at least one other person. Most State Governments have websites with the forms to do it yourself, or your can get a lawyer to assist you. If you’re ready to nominate Power of Attorney and live in New South Wales, for example, you can try using the Planning Ahead Tools for more advice. This website run by the NSW Government helps answer questions like:

  • What’s the difference between Power of Attorney and Enduring Power of Attorney?
  • How to store or change your Power of Attorney.
  • What to consider before nominating Power of Attorney.

As will all sensitive, legally binding maters, it’s important to consider advice from both legal professionals and your loved ones before signing any documents or making a final decision.

4. Set up Binding Death Nominations or a Reversionary Beneficiary

You may not realise, but superannuation is not an estate asset and sits outside of capacity of your will. When it comes to managing your estate, your super will need to be dealt with separately through a Binding Death Nomination or Reversionary Beneficiary.

What is a Binding Death Nomination?

The best way to provide greatest certainty about where your superannuation will be directed in the event of your death is to set up what is called a Binding Death Nomination.

A Binding Death Nomination binds the trustee of your superannuation to direct your super money where you specify. It simply involves completing a form and having two people witness it. However, there are some limitations on who can be nominated:

  • Your spouse
  • Your children, including legally adopted children (of any age).
  • A financially dependant person
  • Someone who is in an interdependency relationship with you
  • A legal personal representative

Binding Death Nominations can offer peace of mind that, in the event of your passing, your superannuation benefits will be passed on according to your wishes. However, Binding Nominations need to be updated every three years, so they may not be appropriate if there is already a fair degree of certainty where your assets will be allocated.

Reversionary beneficiary

If you have your superannuation in the pension phase (like an account based pension) you do have the option to set up a reversionary beneficiary where the pension can simply be redirected to the surviving spouse in the event of death.

5. Communicate, communicate, communicate

This step is sadly the most neglected when it comes to planning your estate. Failing to communicate your wishes or changes to your estate can cause tension between yourself and your beneficiaries. If your will is not reflective of what you may have promised, it can also prompt a legal challenge on your Will.

When addressing your loved ones, close friends and other beneficiaries, don’t forget to explain why you have set things up as you have, particularly if you are directing funds in an unequal manner e.g. giving more funds to a single parent or a disabled child.

Most importantly, if you haven’t prepared your estate plan, it’s time to get started. Give yourself a set time frame and you will be well on the way to getting your financial house in order!

General Disclaimer

The information contained in this article is a summary and general in nature. It does not take into account any personal objectives, financial situation or specific needs of individual members.