Separation and your estate planning

Separation and your estate planning

When you are going through a separation, it’s easy to get bogged down in negotiations about looking after the kids and dividing up your property.  However, there are some personal things to give some attention to when you are going through a separation.  Your estate planning is definitely one of them.

Failing to update your estate planning documents can have serious consequences for you, your assets and your children.

Your Will

Marriage separation does not have an effect on your Will, so the terms of your Will will stay the same, despite separation.  Most couples make Wills that give their assets to each other in the first instance.  If you have a typical Will that follows this structure, and you don’t update your Will after separating, all your assets will pass to your former partner when you die.  For this reason, the period of separation that occurs prior to divorce is an important time to ensure your Will reflects your changed circumstances.

If you do divorce, your existing Will is voided to the extent it provides for your former partner.  The benefit is that this cleans the slate, so your former partner will not receive what could be a large portion of your estate.  The downside is that you can be left ‘intestate’, meaning without a valid or effective Will.  This is obviously not ideal, so it is important to get a new Will in place to ensure your estate planning objectives are carried out.

If you and your former partner are going through property settlement proceedings in the Family Court, it is even more important to put in place a comprehensive Will.  Our preference is your Will specifies the reason why you have excluded your former partner, having regard to the family provision legislation that applies from State to State.  In some circumstances it can also be helpful for you to make a Statutory Declaration that sets out in greater detail what provision you have already made to your former partner, why you have excluded them from your new Will, and why you have chosen to provide for the beneficiaries named in your new Will.

Your Powers of Attorney

A Power of Attorney is a powerful thing, and can do some real damage if it falls into the wrong hands.  Unfortunately, your former partner’s hands may not be the safest following a separation.

Under a Power of Attorney document, a person (your ‘attorney’) is authorised to deal on your behalf in relation to your legal and financial affairs.  You are known as the ‘donor’ under a Power of Attorney, because you have ‘donated’ the power under the document.  A General Power of Attorney becomes effective straight away, but expires when you lose mental capacity.  An Enduring Power of Attorney applies from the time you lose mental capacity, and continues on until your death.  Many people make a General & Enduring Power of Attorney, which becomes effective straight away and lasts through until you die.

The legislation  regulating powers of attorney in each State contains provisions that prohibit an attorney from acting in the interests of anyone but the donor.  This is an important prohibition, because it ensures your attorney cannot just take your money for themselves or give all your property away to other people.  However, it is possible to override this prohibition by including a clause in your Power of Attorney that allows your attorney to benefit when they act as your attorney.

An overriding clause is commonly included in Powers of Attorney where the donor is appointing their partner/spouse as their attorney.  This is often an appropriate arrangement, as it relieves the partner who is acting as attorney from worrying about breaking the law by benefiting from the document.  But allowing such a document to remain in effect after separation can be very dangerous.  It is almost like giving your former partner a blank cheque book.  They can use this power to sell property, access bank accounts – you name it.

The immediate threat only really applies to General Powers of Attorney and General & Enduring Powers of Attorney, because your partner as attorney can use the document straight away. However, it is a good idea to revoke and replace any Power of Attorney where you have appointed your former partner as your attorney.

It is important to note that a person’s appointment under a Power of Attorney is only terminated once that person is notified of the document’s revocation.  This means that written notice should be provided to your former partner to inform them that the document has been cancelled and that their appointment as attorney is no longer effective.  There is a template form of revocation that is published in most States.  It is also good practice to ask your former partner to confirm they have not transacted on your behalf (acted as your attorney) prior to the revocation, or to give you details of any transaction that they have carried out. This can then be taken into account in the property settlement negotiations.

Your superannuation death benefit nominations

For many people, their superannuation represents one of their biggest assets.  Younger people typically hold their life insurance through super but may have limited personal assets, as they are still building their wealth.  Whereas for older couples, they may operate a self-managed superannuation fund (SMSF) and be putting a lot of their spare money into increasing the value of super in preparation for retirement.

When you die, all your superannuation entitlement and the value of any life insurances owned in super get combined into one pot which is called your ‘superannuation death benefits’.  A ‘superannuation death benefit notice’ is used to direct where your superannuation death benefits go when you die.  This nomination is required regardless of whether you are part of a retail fund or have an SMSF.

If you do not have a binding superannuation death benefit nomination in place, the trustee of your super fund decides who gets your super death benefits when you die.  Some death benefit nominations also have a lapsing date (usually 3 years from the date they are made), and if a nomination has lapsed it will not be binding on the trustee.  For this reason, it is important to keep nominations up to date.

If you separate, you should update your superannuation death benefit nomination as soon as possible to safeguard your super.  If you have a binding nomination in place naming your former partner as the beneficiary, you should make a new binding nomination directing your superannuation death benefits either to your children or to your estate.  Any superannuation death benefits that are paid to your estate will be dealt with as directed by your Will, so it is important to make sure that your Will then directs your super death benefits to your new beneficiaries.

If you and your former partner share a SMSF, it is even more important to ensure that your binding death benefit nomination is updated following separation.  This is because if you die your former partner is likely to be left as the sole trustee of the SMSF.  As the sole trustee, your former partner will get to decide where to pay your super death benefits (including to themselves) unless you have a binding nomination in place.

What you can do

Reviewing and updating your estate planning documents when there is a significant change in your life is crucial.  Separation is a big life change, and it usually requires a complete overhaul of your existing estate planning documents.  We have a wealth of experience in helping separated people update their estate planning documents to best protect them and their children.

If you are going through a separation and would like some assistance, call us on 1300 654 590 or email marie@andreyev.com.au.

 


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