Expecting the unexpected: The importance of estate planning

February 2019

Life does not always go according to plan but that doesn't mean you shouldn't make the effort to invest time in making sure your estate is passed on as you want it to be.

Few of us really want to think about planning for the worst, especially when we're focused on growing our businesses, families, and – hopefully – our wealth.

However, life can often bring the unexpected and there are few things more challenging and difficult than the stress of assets, finances, or distribution of assets when someone becomes sick or dies.

The downside of not being prepared is the potential for hard-earned assets to be squandered, cause family fall-outs, or money goes to the government that could have been distributed in accordance with your wishes.

And if you're a business owner, the stakes are higher.

Why does estate planning matter?

Estate planning is simply identifying your assets and liabilities and what you want to happen to those assets if something happens to you. We're living in an era when changing demographics and intergenerational wealth transfer is well and truly upon us, so it pays to think about what issues could arise for your family and your business.

Here are some key stats:

  • Australia is ageing – 1 in 7 of us are now aged 65 and over (3.8 million)
  • The baby boomer generation represents only 25% of the population but hold 55% of the wealth
  • We are entering a period of intergenerational wealth transfer from the baby boomer generation
  • Over the last 25 years, there has been an explosion of wealth in Australia

There are always tax outcomes and the legal requirements to provide the best care and protection for your beneficiaries, and this is where working with your accountant and financial planner can ensure that your assets are distributed as you want them to be

Running a business?

If you own a business and something happens to you unexpectedly, there are very real considerations to be made about how to ensure the business can function without you in your current role.

It's a very real concern that a business can continue to operate until either you're able to return to your role or someone else is able to take the reins and run it for you. Planning for the worst – such as your death or complete incapacitation – means that beneficiaries can take their share of the value accumulated in the business and it protects them, the business, and your business partners.

It's not just size that matters.

The actual wealth or the size of your estate is not the sole reason for estate planning. Estate planning is important for:

  • The care and maintenance of minor children.
  • Managing the respective rights and expectations of beneficiaries, particularly with blended families.
  • Avoiding disputes between family members.
  • Relationships outside of the immediate family.
  • Managing liabilities of the estate.
  • Assets which may not be capable of immediate realisation or where value will be diluted by realisation.
  • The transfer of assets through generations.

Estate planning seeks to not only distribute the assets of your estate but do so in a way that protects the estate, addresses issues within the estate, and fulfils your wishes.

It won't happen to me (well, it might)

Australia enjoys one of the highest life expectancies of any country in the world at 82.5 years (in 2015) and is ranked fifth among 35 OECD countries. Japan has the highest life expectancy at 83.9 years. But while many of us might be living longer, not all of us are living well.

Four out of five Australians rate their health as 'very good', yet 50% have a chronic condition that is likely to cause their death, 63% of adults are overweight or obese, and around 45% of us will experience a mental illness in our lifetime. 

Leading causes of death differ by age:

  • 1–44 years: suicide, land transport accidents
  • 45–74 years: coronary heart disease, lung cancer
  • 75 years and over: coronary heart disease, dementia and Alzheimer disease

It's estimated that 138,300 people were diagnosed with cancer and 48,600 died from it in 2018.

It's often not a comfortable conversation to have with family, however, it pales in comparison to the stress and complexity that a family faces when a loved one dies or is faced with life-threatening illness.

Working with your accountant is a starting point

Professionals such as your accountant and solicitor can make what is a confronting process a much more bearable one by helping you to look at your assets and circumstances, then create an estate plan.

To find out more, contact us on 02 9957 4033 or email us here.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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