The most common inheritance mistakes and how to avoid them
Your inheritance planning is crucial, avoid these basic errors to help your nearest and dearest.
The problem with inheritance mistakes is the person responsible never realised they occurred — but, these errors are felt by everyone else once they’re gone.
Several mistakes in particular stand out for their ability to cause confusion, chaos and additional heartache for those who are left behind.
Mistake #1: Not planning
Ever heard the phrase “failing to plan equals planning to fail”? Inheritances left to chance risk your wishes not being carried out.
Individuals or charities you intended to support can inadvertently get overlooked. Disagreements between siblings and/or other benefactors are much more likely, particularly if you are divorced, separated or part of a blended family.
In extreme cases where there is no will and unidentified assets go unclaimed, the government becomes the biggest beneficiary.
Despite this, many people don’t have the basics like a will. Figures are patchy, but various surveys and estimates have suggested anywhere between 40 and 70 per cent of Australians don’t have a valid will.
In 2023, the NSW Trustee and Guardian put the figure at 60 per cent of all adults in NSW.
Mistake #2: Failing to make updates
Having a will and your other estate planning affairs drawn up is one thing. However, it is a big mistake to think that is the end of the process.
As your circumstances change throughout your life (marriages, separations, kids, investments, deaths, inheritances, grandkids and, yes, property purchases and sales), your will should be updated to reflect these new realities: Not doing so creates a lot of legal headaches and compounds the grief your loved ones are feeling.
Who inherits assets that are not covered in your will? What happens when something has been left to a person who has already died? Do children or grandchildren born after your plans were drafted get anything? What happens when one of your beneficiaries has a marriage breakdown?
Will your ex receive an unexpected windfall from you while your current partner receives nothing? Sadly, I have seen these scenarios play out many times — and they could easily have been avoided with a valid will.
Mistake #3: What is not covered
Your last will and testament covers a lot of things, such as nominating your executor(s), dividing money and assets and outlining custodianship of — and provisions for — your children and pets.
Contrary to popular belief, though, a will does not cover everything. Separate legal entities and certain financial assets are not covered by a will, including businesses, trusts and similar structures.
Most significantly, this also applies to superannuation. Instead, you have to nominate your beneficiaries directly within those structures. Not doing so can lead to a drawn-out legal process, which will delay your loved ones being able to access those benefits and potentially cost them a lot in legal fees along the way.
Remember, too, in relation to property ownership: joint tenants have an automatic right of survivorship, regardless of what is in your will.
Tenants in common do not have the same right, making it particularly important to declare who will inherit your share.
Mistake #4: Failing your surviving partner
Death inflicts enormous and often sudden changes onto a surviving spouse or partner. On top of the emotional pain and grief, there are funeral costs, a sudden drop to just one income, and economies of scale disappear.
If they aren’t retired, they may need to take time off work — both to work through their grief and manage all the various legal, financial and administrative affairs. They may also be forced to move home. Some of this is unavoidable.
Grief is a natural emotion we experience after a loss. Transferring money and assets from a deceased person requires paperwork and proof of identity. Yet, there are many steps you can take to simplify things for your spouse, which are often overlooked or delayed until it is too late.
These could include life insurance and funeral cover, cash savings and an emergency fund, plans to meet any mortgage repayments without your income, provisions for any paid care requirements, and business continuity plans if you are self-employed.
Additionally, make sure to address any of the other common mistakes outlined here to ensure your spouse is as prepared as possible.
Mistake #5: DIY
Inheritance is a complex business that compounds with the number of assets and beneficiaries you have. Yet many people think that they can save a few dollars by doing it themselves with one of those mail-order will kits. My advice: don’t!
Too many people have suffered additional heartache and financial loss because these wills have been completed incorrectly, rendering them invalid. Even simple mistakes can leave them completely useless.
On top of that, there is the growing risk of scams, which could result in you or your loved ones losing everything.
Edited extract from Money For Life: How to build financial security from firm foundations by Helen Baker (Major Street Publishing)
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