July 27, 2022
Who has the power to make your financial decisions?
As we grow older, most of us aim to live a long, happy and healthy life, sustaining the mental capacity to make our own lifestyle and financial decisions, and with the appropriate superannuation to fund it.
Unfortunately, this is not a reality for us all. In the worst-case scenario, you may find yourself unable to make decisions yourself due to a diminished mental capacity (such as from mental deterioration, illness etc). Not being able to make medical or financial decisions can be bad, especially if you don’t have a pre-elected plan in place.
There is a common misconception that people who lose their capacity to make decisions simply have their partner or spouse step in to make decisions on their behalf. This is not necessarily the case – even if you are in a relationship with someone or own property with them, they do not automatically have the power to make medical or financial decisions for you. This is where the importance of Estate Planning comes into action!
What is an Estate Plan?
An Estate Plan acts like a back-up plan, providing peace of mind and certainty in the case of your demise or death. It serves two main functions:
1. An Estate Plan records what you want to be done with your assets after your death. It can include documents such as:
- your will
- a testamentary trust (as part of your will)
- superannuation binding nominations
2. It covers how you want to be cared for both medically and financially, if you can no longer make your own decisions. This can include documents such as:
- any powers of attorney
- a power of guardianship (which gives someone the right to choose where you live and to make decisions about your medical care)
- an advance healthcare directive (which outlines your needs, values and preferences for your future care)
Creating an Enduring Power of Attorney
In addition to your Estate Planning, you may also choose to create an Enduring Power of Attorney (EOPA), which is a substitute decision-maker on your behalf. An EPOA is essential for clients who have their own Self-Managed Super Fund (SMSF).
The SMSF regulations require that members of the SMSF are either a trustee of the fund or directors of a company acting as the trustee. If a fund member is incapacitated, the member cannot be a trustee or the Director of a company. If that occurs, the SMSF becomes ‘non-complying’ which means it loses the tax concessions given by the super regulations.
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Depending on your state of residence, powers of attorney may have different rights and obligations, particularly with respect to financial matters. For many of the small business owners we work with, their business is their most significant asset. As such, it needs to be carefully considered when preparing an Estate Plan. Doing research and consulting with a professional to understand what your best course of action is and define your preferences should you lose your decision-making capacity is vital, no matter how young or healthy you are.
Unsure where to start or who best to contact for help? Get in touch with our team of experts today who can point you in the right direction and assist with your business succession plan!