An estate is what is called a ‘legal entity’ or ‘legal vehicle’, which is used to manage your assets and your finances after you have passed on. Rather than immediately distributing all of your wealth or possessions to loved ones, an estate can manage these assets as a company or group of people would – creating what is called ‘continuity’ after your passing, where you can create rules to manage what you leave behind.
An estate is an incredibly useful vehicle to take care of your loved ones, friends, and perhaps most importantly, your dependents (such as children). Drafting one within the provisions of your will can ensure that your legacy and wishes are respected after your death and can empower your loved ones with comfort and security when you are no longer present.
In this guide, we will explore how you can begin creating the rules for your estate, and what you should consider when doing so.
Create a will to manage your wealth
The backbone of any estate, a will is a legal document that contains your final instructions and wishes on how your assets, finances, or other concerns should be handled in the event of your death or in the legal event that you are ‘incapacitated’ (where you are still alive, but are unconscious or not of sound mind to make decisions).
Creating a will is an important exercise; having a will empowers you to take care of your loved ones after the event of your death to ensure the management of your finances according to your wishes even if you are no longer present to make important decisions yourself.
For example, creating your will can help your loved ones and legal practitioners determine how to allocate funds, manage existing expenses, and change ownership of your assets when you are no longer present to enjoy them.
Passing on without a will in place is called ‘dying intestate’, and means that legal practitioners or in some cases your family will instead have the authority to manage your assets and finances, even if these decisions are contrary to what you would have wanted if you were alive.
It is important to note that simply drawing up a will does not make it a legally enforceable document; that is, just writing one does not bind anyone to follow its instructions. You will need to lodge your will with an executor (an attorney, legal practitioner, or bank) to ensure that your last wishes are followed to instruction.
For more information on the benefits of creating a will, you can read our helpful breakdown here.
Name beneficiaries and define ownership of the estate
After your passing, your estate becomes a legal entity. This means that in your will itself, you will need to define who (if anyone) is a beneficiary of the estate – that is, if you determine they should receive finances or ownership of your assets.
Defining the structure of your estate will give you the confidence to take care of your loved ones after your passing. For example, in the event of your death, your estate could be directed to invest and manage funds where the profit or capital itself could be set aside to cover the costs of your child’s education, their healthcare, or even a monthly stipend to supplement their income if you so wish.
Consider what assets you would want to bequeath to the estate
Estates are not solely formed by the money you have amassed during your lifetime – they can also be constructed around what assets you have inherited or purchased as well.
Your will can ‘bequeath’ assets to your estate if you desire – for example, this could mean that instead of a relative assuming ownership of a property bought in your name, your estate could take ownership of the property and its expenses and be used to house more than one person (or to rent the property for income, for example).
Bequeathing assets to your estate will allow you to maintain closer control of how they are used or eventually sold and can be useful to manage assets closely to how you would have preferred to use them in daily life.
A legal practitioner can assist you in creating sound policies and rules that will enable your estate to flexibly use your assets while remaining true to your wishes.
Consider estate taxes
Just as earning an income or managing the expenses of daily life is taxable, so is the management of an estate. This means that you will need to keep in mind that any assets or finances you leave behind will be subject to tax, and any management fees your chosen legal practitioners or attorneys may charge you.
While drafting the rules for your estate, remember to consider these taxes and charges and take them into account when planning for the far future. For example, keeping a property in your trust may mean that selling it one day may accrue Capital Gains Tax. Similarly, renting it out would require capital to refit and refurbish it over time. Keeping these considerations in mind can help you draft practical rules.
Taxes that can apply to the management of an estate can include:
- Estate Duty
- Capital Gains Tax
- Income Tax
Create a power of attorney
A power of attorney enables a chosen person to sign legal documents and carry out your will on your behalf in the event that you have passed on or are rendered incapacitated. This can also allow a trusted person (or group of people) to make decisions on your behalf.
Although this is naturally an expression of trust and is a huge responsibility to take on, having a power of attorney can assist you, your family, or your loved ones make decisions when you are no longer fully capable of doing so. Importantly, this can also assist an estate to make important decisions around the distribution of your wealth and assets.
Consider a living will
Lastly, when drafting the rules of your estate, consider creating what is called a ‘living will’. Much like a conventional will, this is a list of rules that will instead apply and be carried out in the event that you are legally alive, although no longer conscious (such as what is referred to as ‘brain death’).
A living will can help your loved ones make important decisions around your care, your passing, and the handling of your assets and can give them direction when you can no longer do so.