Estate planning vital for clarity and understanding in loss of loved one

Recently I was chatting with the man who takes care of my garden, and I asked him if he had a will. He replied, "I've never got around to it. It all seems too much trouble." I responded, "You've been married before haven't you? And don't you have children from that relationship?" It was yes to both questions. He got a shock when I told him that according to the laws of intestacy, his previous family may get a bigger share of his money than he would like if he dies without a valid will.

Estate planning is a massive topic, because it covers such a myriad issues, many of which are uncertain. It's not just the interplay of important topics such as tax, superannuation and Centrelink - the estate planning laws differ from state to state.

To this heady mix we add human psychology. Many people just don't get around to making a will, and even if they do, there are the other challenges of choosing an appropriate executor and handling the competing interests of family members. There are further complications due to the number of people living longer and re-partnering later in life, and also the possibility of diminishing mental capacity.

And there's more - many people have children living overseas, and over 50 per cent of Australians were born overseas or have a parent living overseas. This brings the complexity of overseas assets and beneficiaries into play.

It's interesting that the average age of making a will is 47. But it makes sense. At that stage, people's parents are probably in their 70s or early 80s, and how their inheritance may be dispersed is probably fast becoming a major issue on the children's mind.

Yes, it's a minefield, but I can give you some practical tips. For starters, don't be too quick to spread word of the death. All too often when somebody dies, their family rushes down to tell the bank. They get a terrible shock when the account is frozen and there's no money to pay for the funeral. Many retirees' main income is an account-based pension from superannuation. It's a similarly big mistake is to tell the superfund immediately about the death. If you do this, their pension will be stopped immediately, which is highly likely to leave any survivor with a cash flow shortage that may easily take nine months to resolve.

Another major misunderstanding concerns powers of attorney. Originally, a power of attorney lapsed when the donor, the person who gave it, lost capacity. But a power of attorney is usually most needed when someone has lost capacity. So enduring powers of attorney (EPAs) were developed. A common misconception is that an "enduring" power of attorney endures after the death of the donor, but this is quite wrong. The moment the doner dies, the EPA's authority is over and the executor's has begun. Yet often, a surviving partner gets a terrible shock when they discover this.

Estate planning aims to give all involved clarity and certainty that loss of a loved one will not plunge them into chaos and financial difficulties. It's well worth spending some time on it to take care of those you leave behind.

While some parents are able, and happy, to help adult children with a contribution for a great overseas holiday, most parents are looking at sensible options to gift for more long-term well-being and financial security such as helping with a home deposit. In this context is it possible or permissible for parents to also put money via a non-concessional contribution into the adult child's super account directly so there's no travel through their bank account where it could be waylaid and misspent.

It's possible for anybody to make a non-concessional superannuation contribution into another person's bank account. The downside is that the money is inaccessible by anybody until the child reaches their preservation age which could be many years in the future.

A better strategy would be to keep the money in your own name so you've got control, and if you've got doubts about their ability to handle the money, leave it to them in your will through a testamentary trust which will be controlled by the trustee and not the child.

I am 70 and have reached my super cap due to a combination of the notional value of my defined benefit pension and my super fund, which is in pension mode.

Can I still make non-concessional to my accumulation account in my industry fund as I'm told there are no limits on accumulation accounts.

Would I still be better off after paying the 15 per cent tax in there than earnings from a bank term deposit?

It doesn't matter whether the fund is in accumulation mode or pension mode, or what type of superannuation fund it is, if your total superannuation balance exceeds $1.9 million you cannot make any further non-concessional contributions.

If you do the sums I think you will find that you can keep a hefty chunk of money in your own name and pay no tax thanks to a wide range of offsets. Don't forget the tax rates change after June 30.

Would taking out a reverse mortgage affect a person's age pension?

Drawing down on a reverse mortgage should not affect your pension unless you draw a large sum and put it into a bank account. It may then be assessed. The way around this is to only draw down on your reverse mortgage as you need it, and don't draw any lump sums, unless you intend to spend them straight away. This is also a prudent way to manage the loan because the later the drawdowns start, the less interest you will pay.