A question I am often asked is: why should I see a lawyer about my estate planning when I can make a DIY Will – the type of will you complete yourself using a template purchased form the newsagent, post office or downloaded from the internet, for a fraction of the price? The question highlights a growing perception among members of the public that DIY Wills, are a cost effective way of taking care of your loved ones after you die. Unfortunately, DIY wills are fraught with danger and may impose an added cost and burden on your beneficiaries.
5 Risks Associated with a DIY Will Kit
Here are five reasons why it pays to consult a lawyer, but not just any lawyer, a tax and estate planning specialist:
(1) Formalities
The first problem with DIY Wills is that they often fail to comply with the most basic legal requirements for creating a valid will. Many are incorrectly signed and witnessed. For example, the will may not have been witnessed by two people or the witnesses were not otherwise present at the same time.
The importance of these formalities cannot be underestimated – a failure to comply with them, can result in the will being invalid. A lawyer, on the other hand, can oversee the execution of the will to ensure that these requirements are met.
(2) Drafting errors
Legal drafting is not a skill that can be learned overnight. In my experience, many people who made DIY Wills did not believe their affairs were sufficiently complicated to warrant seeing a lawyer.
However, there is more than meets the eye. For example, a gift as simple as “I give my real property at XYZ to Beneficiary A” is fraught with difficulty. What if the property is subject to a mortgage? What if the person making the will sells the property before their death? What if Beneficiary A predeceases the will maker?
These are all issues that need to be taken into account and are best left to a legal professional.
(3) Capital Gains Tax
Australia is one of few jurisdictions to have abolished death duties. However, tax cannot simply be ignored. One of the biggest revenue raises for the government is Capital Gains Tax (CGT). How to legally minimise, the impact of CGT on an estate is a question on which only a specialist tax and estate planning lawyer can advise.
(4) Superannuation death benefits
Superannuation death benefits tax applies where a superannuation death benefit is paid to a non-dependant, for example, an adult child. A specialist tax and estate planning lawyer can advise on the strategies that can be put in place to reduce, or even eliminate, such tax.
For example, where you have both dependant and non-dependant beneficiaries, one strategy is to allocate the superannuation death benefit to the dependant beneficiaries and to include an equalisation clause in the will which ensures that the non-dependant beneficiaries receive a greater share of the testator’s other assets.
A superannuation proceeds will trust may also be considered.
(5) Predators
A comprehensive estate plan should address the risk of the estate being challenged. For example, can the will maker’s assets be structured so as to be protected from a claim against the estate?
Finally, what if a beneficiary later divorces or separates? Will the former spouse end up with a significant portion of the inheritance? A specialist tax and estate planning lawyer can advise on the merits of a testamentary trust.
