Estate planning is an important process that involves making arrangements for the distribution of assets and the management of affairs after one’s passing. However, certain complexities arise when accounting for divorced partners, loved ones struggling with substance abuse, or individuals diagnosed with disabilities.
In this article, we will explore the complications that can arise in estate planning and provide guidance on how to navigate these sensitive situations.
Estate Planning Around Divorce
Divorce introduces unique challenges in estate planning, particularly when it comes to the treatment of former spouses. Adjustments to your estate planning may be vital, considering the most recent ABS data available indicating 49,241 divorces filed in Australia for a 2.4 crude divorce rate.
Update Beneficiary Designations
After a divorce, review and update beneficiary designations on various accounts and policies. This includes life insurance policies, retirement accounts, investment accounts, and payable-on-death (POD) or transfer-on-death (TOD) designations. Failure to update these designations may result in assets passing to an ex-spouse instead of intended beneficiaries.
Revise Wills and Trusts
A divorce often renders any provisions in a will or trust regarding the former spouse ineffective. It is essential to review and revise these documents to reflect the changed circumstances and ensure that assets are distributed according to the individual’s current wishes. This includes updating provisions related to property distribution, appointment of guardians for minor children, and naming of executors or trustees.
Take note as well that Australia’s states and territories will have their own treatments on divorces and wills, which your family solicitor can guide you on. The team at Altus Financial claims that in some areas, a divorce removes the spouse who served the papers as executor if they were ever named in the will, and may not even be given anything due them.
Address Custody and Support for Minors
Divorce often involves child custody and support arrangements if the couple ever had kids. Estate planning should consider the well-being and financial security of minor children. This may involve appointing a guardian in the event of the individual’s death and establishing trusts or other mechanisms to provide for the children’s care, education, and upbringing.
Powers of Attorney and Healthcare Directives
During marriage, spouses often grant each other powers of attorney and healthcare decision-making authority. After a divorce,revoke or revise these documents to ensure that decision-making authority aligns with the individual’s current wishes and relationships. New powers of attorney and healthcare directives may need to be executed, designating trusted individuals to act on behalf of the individual in financial and medical matters.
Review and Update Asset Distribution
Divorce can impact how assets are distributed upon death. It is important to review and update any provisions related to property distribution, especially if there are specific assets or amounts designated for the ex-spouse. Additionally, the individual may want to reassess their overall estate plan and make adjustments based on their changed financial situation and goals.
Estate Planning Around Substance Abuse
Estate planning requires careful consideration if a beneficiary might have episodes with substance abuse. Leaving significant assets outright to someone battling addiction may inadvertently enable more destructive behaviour. In 2023, the Parliamentary Joint Committee on Law Enforcement expressed concerns about people having more digital channels to seek illicit substances (which may include people already hit with drug addiction) and sought input from the Australian Criminal Intelligence Commission and the Australian Institute of Criminology.
The following are some strategies to handle estate planning with a loved one under addiction.
Asset Protection and Management
Leaving significant assets outright to someone struggling with drug addiction may not be in their best interest. The funds could be misused, fueling destructive behaviour or exacerbating the addiction. To protect the individual and their inheritance, a trust can be established as part of the estate plan. A trust appoints a responsible trustee to manage and distribute the assets on behalf of the beneficiary, ensuring they are used for their intended purpose, such as rehabilitation, healthcare, or education.
Substance Abuse Treatment and Support
Estate planning can incorporate provisions that promote treatment and support for the individual’s addiction recovery. This may include directing funds from the trust towards rehabilitation programmes, counselling services, or ongoing therapy. By structuring the trust to provide financial assistance for recovery efforts, estate planners can contribute to the individual’s well-being and long-term recovery.
Conditions and Incentives
To encourage sobriety and responsible behaviour, estate planners can include conditions or incentives in the trust. For example, the trust may stipulate that the individual must maintain sobriety, attend regular counselling or support group sessions, or participate in educational or vocational programmes. Meeting these requirements could unlock additional distributions or benefits from the trust, providing motivation for the individual to maintain a drug-free lifestyle.
Estate Planning Around Disability
In estate planning, persons with disabilities (PWDs) require additional attention to ensure their financial security and access to necessary support.
Special Disability Trust
One of the primary considerations for estate planning involving PWDs is the creation of the Special Disability Trusts (SDT). SDTs are designed to provide financial support for the person with a disability while preserving their eligibility for government assistance programmes such as the National Disability Insurance Scheme (NDIS) or disability pensions. The trust can be structured to supplement public benefits by covering additional expenses not provided by government support, but consult the Department of Human Services for further advice as they can gauge eligibility for support.
Appointing a Trustee
When establishing a special needs trust, it is important to carefully select a trustee who will manage the trust assets and make distributions on behalf of the beneficiary. The trustee should have a good understanding of the individual’s unique needs, be financially responsible, and act in the beneficiary’s best interests. This trustee may be a family member, friend, or professional trustee.
Financial Management and Assistance
Estate planning for a person with a disability should consider their ongoing financial management and assistance. This may involve appointing a financial guardian or solicitor to make decisions on their behalf if they are unable to do so independently. The chosen guardian or attorney should be someone who can provide guidance, manage financial affairs, and ensure the person’s long-term financial well-being.
Letter of Wishes and Care Instructions
In estate planning, it can be beneficial to include a letter of wishes or care instructions that outlines the individual’s preferences for their care and support. This letter can provide guidance to future caregivers, trustees, and family members regarding the individual’s medical needs, living arrangements, therapies, and any other specific requirements.
Regular Review and Updates
As circumstances change over time, it is important to regularly review and update the estate plan to ensure it remains aligned with the individual’s evolving needs and objectives. This may include adjusting the trust provisions, updating beneficiary designations, or revising care instructions based on changes in the person’s health, living situation, or available support programs.
Conclusion
Regardless of the specific complexities involved, every estate plan should include a well-drafted last will and testament. A will outlines how assets should be distributed, designates guardians for minor children, and appoints an executor to carry out the wishes stated in the will.
When dealing with the complexities of divorced partners, substance abuse, or disabilities, it is essential to clearly articulate intentions and make provisions that address these specific situations. Preparing the last will and testament through an estate planning solicitor can ensure that it accurately reflects the individual’s wishes while considering the complexities involved.
Estate planning becomes more intricate when accounting for divorced partners, loved ones with substance abuse, or PWDs. It is essential to review and update estate planning documents, consider the use of trusts, and seek professional guidance to navigate these complexities properly.
By treading carefully and addressing these sensitive situations, individuals can ensure their estate plans protect their assets, support their loved ones, and provide for the unique needs and circumstances of all involved parties in Australia.
DISCLAIMER: This article serves solely for informational purposes and should not be construed as legal advice. 2 Ezi has no relations with any company or government office mentioned in the article. Please consult your family law, mental health practitioner, and estate solicitor.
