Every person over the age of 18 must ask themselves two questions: what happens to my assets when I lose my legal capacity through injury, disability or disease and what happens to my assets when I die?
What happens to my property when I lose my legal capacity?
Legal capacity is a legal term describing your ability or power under law to enter into contracts (e.g. leasing a property), administer your money in the bank (e.g. drawing and transferring money), make property decisions (selling or buying a property) and to sue and be sued in your own name.
Legal capacity is lost when you are found to be incapable of making decisions due to mental incapacity as a result of an injury (e.g. motor vehicle injury), disability or sudden illness (e.g. dementia or Parkinson's disease).
When you lose your legal capacity, you lose your competence to make any decision associated with your assets. All your rights to deal with your assets are stripped from you and you are left with no recourse to intervene.
What is an Enduring Power of Attorney (EPA)?
An EPA is a legal document which, in some ways, operates the same as a Will. It enables you to appoint a person (or persons) to determine what should happen with your assets while you are still alive, whereas a Will only operates after you have died.
The appointed person(s) can manage your money in the bank, buy and sell properties in your name – everything you would have been able to do was it not for your legal incapacity.
You may choose whoever you feel you can trust to look after your affairs (your spouse or partner, another family member, trusted friend, accountant or lawyer).
You determine when your EPA should come into effect – immediately (which is useful for when you are out of the jurisdiction) or only after you lose your legal capacity.
What happens to my property when I die?
Upon your death, all your assets are frozen until a person is appointed by the court to legally administer your estate (to pay your debts and distribute your property).
If you die leaving a valid Will, that person will be the person you appointed under your Will to do the job (called your executor); on the other hand, if you die without a valid Will, the court will appoint someone (called your administrator) from an order of persons fixed by the Administration Act 1903 (Act).
The process of appointing someone to administer your deceased estate takes between 3 and 6 months on average, is expensive and puts a lot of strain on your family.
What is a Will?
A Will is a legal document whereby you determine how to dispose of your property when you die.
Dying without a valid Will bring the laws of intestacy into operation whereby the government decides who will receive your property in an order fixed by the Act.
Wills are categorised into two groups; basic Wills (whereby you leave your property to your spouse and then onto your children) and complex Wills (a comprehensive legal document that enables the setup of testamentary trusts to provide for your minor children or grandchildren, deals with blended family issues or to provide detailed instructions to administer complex estates).
It's up to you to decide who benefits from your assets, at what time and under what terms. Ideally, estate planning should aim to ensure that your assets pass to chosen beneficiaries in exactly the way that you intend while legitimately minimising tax for those beneficiaries and without leaving a legacy of family disputes.
You are welcome to call us on (08) 9200 1833 to make an appointment to see one of our lawyers for a free of charge appointment to review your estate planning. We will quote you a fixed fee before we commence with any work.