How to Prevent Your Inheritance Going “L” Shaped

Did you know that:

• Not all of your assets are covered by your Will?
• If you leave your estate to your children and they divorce, your inheritance could go ‘L’ shaped to their ex-spouse – and not end up benefitting your grandchildren.
• It’s estimated that 70% of inheritances will not reach grandchildren, having gone ‘L’ shaped somewhere in between

Yep – it’s going to happen – one day, hopefully, a long time from now, you’re going to fall off the perch and your inheritance is going to be passed down the line. But how can you be sure things will go according to your plan? In this article from Josh Philo at Estate First Lawyers, we look at how to properly get your affairs in order and save your loved ones additional emotional stress and confusion when they least need it. Over to Josh to explain more…

What does Estate Planning Involve?

Estate planning is more than just a standalone Will. It involves a holistic and detailed consideration of your wealth and the various legal vehicles it is held in. When it’s set up correctly, an estate plan makes sure your wealth is passed on to your loved ones exactly the way you intended. An estate plan can also consider how to safeguard your wealth if you lose the capacity to work.

When it comes to getting your estate planning in order there are a couple of critical things to consider. Firstly, (and obviously!) these documents only come into play when you’re no longer here to see your wishes through. This means that it is vital that your documents are legally valid and accurately convey your intentions.

Secondly, many of your ‘assets’ may not automatically fall into your Will (such as jointly held property, superannuation, or assets you hold in a family trust), so you need to thoroughly cover off all of the additional estate planning paperwork required, in addition to your Will.

What is an “L” Shaped Will?

One of the biggest (and little known) flaws in having a ‘standard’ Will is the risk of the inheritance going ‘L’ shaped. An ‘L’ shaped inheritance is one where your assets were meant to go to certain people in the Will but ended up in the hands of someone else.

It’s estimated that 70% of inheritances will not reach grandchildren, having gone ‘L’ shaped somewhere in between!

So how do I avoid things going “L” Shaped?

The use of a testamentary trust in a Will, where drafted appropriately, can ensure that the trust fund passes down the generational line to those beneficiaries that you wish it to go to.

A trust fund is controlled by a trustee but that trustee does not own the assets and instead holds the income and capital of the fund on trust for the beneficiaries, which can, for example, be your children and grandchildren. In that example, if your child dies, the trust assets do not pass under their Will (for instance to their spouse) but remain as a trust for your grandchildren.

Testamentary trusts have the added benefit of offering some asset protection against divorce and bankruptcy as well as providing tax planning flexibility for the beneficiaries.

Ultimately, we recommend that you seek legal advice to help you formulate a successful strategy to pass all of your wealth to those you love most and reduce the risk of it going elsewhere – and ensure a smooth process for those left behind.

Estate First Lawyers provide friendly, personalised, and confidential advice and documents around your estate planning, which provides asset protection, tax effective strategies and minimises the chances of an estate claim. Because we specialise in this area we are also able to offer competitive fixed fee prices.

About The Author:

JOSH PHILO
LLB, GDipLPrac, LLM(UQ)

Josh is a Senior Associate at Estate First Lawyers. He practices in both estate planning and estate administration. He works with accountants, financial planners and other advisors to provide a holistic approach to meeting clients’ estate planning and estate administration objectives. He is also an experienced presenter, providing practical and relevant training in the complex area of law.

Estate First Lawyers is a valued partner of Xact Accounting. If you have any questions or concerns about how your affairs are structured, please contact Josh and the team to make an appointment. To find out more about how they can help call 1300 132 567 or [email protected] or visit www.estatefirst.com.au.