Prince and Aretha Franklin died intestate... Why people avoid estate planning - Part One
Prince died on 21 April 2016 and it is estimated that his estate is worth $276 million (AUD). Aretha Franklin died on 16 August 2018 and it is estimated that her estate is worth $101 million (AUD). They have both left behind immortal legacies in the music world. Unfortunately, they have also left behind a minefield of uncertainty for their families because they both died without a Will.
When a person dies without a Will, they are said to have died "intestate". Given Prince and Aretha Franklin's fortunes, it is quite unusual that they had not undertaken any estate planning to ensure their estates could be easily administered and their assets could go to their intended beneficiaries.
As an estate planning practitioner, I regularly hear the same reasons as to why a person does not want to prepare a Will. This is the first part in a series of articles that address the common reasons I hear for not having an estate plan in place.
"But I don't own anything."
This is by far the most common reason young people do not undertake any estate planning. I explain a number of things to clients who are reluctant to undertake estate planning for this reason.
1. A Will has no real benefit to the person who makes it
This is the first thing I explain to clients. A Will is made for the benefit of those left behind who have to deal with whatever the deceased owned at the time of their death. For people with limited assets, the major benefit that comes from making a Will is that you will have appointed an Executor who can begin administering your estate.
When a person dies intestate, someone will have to apply to the Court to be appointed to administer the deceased's assets. The fee to file this application in court is currently $706.70, and that does not include any legal fees require to prepare the application and supporting affidavits. If no one makes an application to administer the deceased's estate, the Public Trustee of Queensland will generally seek appointment as administrator.
2. Making a Will is about planning for what might happen
Secondly, a Will is never intended to apply straight away. Very rarely do I see clients who have received a terminal diagnosis and are planning for their actual, expectant death. A Will is about planning for the future so that your assets, whatever they may be, go to the people most appropriate to receive them.
Many young clients I see do not have a spouse or have not had any children. Most young people do, however, go on to have children (whether or not they are married or in a de facto relationship). With the right structuring, a Will can make sure than any assets go to a person's future children before they revert back to any other beneficiaries (such as parents and siblings, for example).
3.Estate Planning is not just making a Will
Thirdly, making a Will is just one aspect of estate planning. While the statement "I don't own anything" can be somewhat accurate for young people, superannuation (and the life insurance policies often purchased inside superannuation) is a significant asset that a person should consider in their estate planning. Superannuation does not automatically form part of your estate. In fact, the trustee who runs the superannuation fund gets to make the decision as to who receives a deceased person's superannuation.
I generally recommend that my clients make a Binding Death Benefit Nomination with their superannuation fund to control how their superannuation is paid upon their death. However, I have many people explain that they made a beneficiary nomination when they signed up for their first superannuation account at their first job.
When I opened my first superannuation account when I was 15 years, I nominated my mother, father and brother to receive a third of my superannuation each upon my death. My clients will usually tell me something similar. There is one issue with these sorts of nomination that the super documents often do not make clear: parents and siblings rarely fall within the definition of people who are entitled to receive a superannuation death benefit.
The Superannuation Industry (Supervision) Act provides that a superannuation death benefit can only be paid to a "dependant" of the deceased, or to the deceased's legal personal representative (that is, their Executor or Administrator for distribution with their estate). For superannuation, a "dependant" means a person's spouse (which includes de facto partner), child (including step-children) and someone with whom the person was in an interdependency relationship.
An interdependency relationship is a relationship between two people who:
have a close personal relationship;
at least one provides the other with financial support; and
at least one provides the other with domestic support and personal care.
Normally, once a person turns 18 years old and is able to make a Will, their siblings and parents no longer fit into the definition of a person who can receive a superannuation death benefit. This means that, once again, it is up to the trustee of the superannuation fund to determine how the superannuation benefit is paid.
As part of the estate planning process, I discuss with my clients their options in regards to Binding Death Benefit Nominations which ensure that my clients' superannuation benefits are paid to the correct beneficiaries, either directly or through the client's Will.
What to take away
Prince and Aretha Franklin left behind significant fortunes for their families. In April this year, news outlets reported that despite it being two years from Prince's date of death, his family had not received anything from his estate due to the legal issues affecting his estate.
However, the need to have an estate plan in place is not limited to people who have a net worth of over one hundred million dollars.
Everyone should have a Will, even if you think you don't own anything.