Understanding legal jargon for your future
<p>Confused by some of the legal jargon you continually come across in getting your affairs in order? If so, here’s some of the most common ones explained.</p>
<p>Do you know the difference between a power of attorney and an enduring power of attorney? What about the meaning of an enduring guardianship? Or what an executor does? As you start to get your affairs in order and plan for your future, you’re bound to come across a handful of terms again and again, so it’s best to understand what you’re reading or hearing from your lawyer. Here’s a guide to some of the most common terms you’re likely to come across when planning ahead.</p>
<p>Note there are quite a few differences between the States and Territories. Something that is called one thing in Victoria for example, may not be called the same thing in Tasmania.</p>
<p><strong>Advance health directive/Advance Care directive:</strong> Also called a living will and in the Northern Territory an Advance Personal Plan, this is a legal document that enables you to make decisions now about your medical treatment if you became sick or injured and you aren’t able to communicate your wishes or consent to treatment. If this happens, this bit of paper would effectively become your voice. Keep in mind, that an advance health directive would only come into effect if it applied to the treatment you required and only if you were unable to make reasoned decisions about a treatment when it was needed. The document could be a general statement of your wishes or it may give specific directions for various medical conditions and types of treatment that you do and don’t want. Medical staff can refer to this document if you were or became incapable of making the decisions yourself. Be aware however that advance directives are only legally binding on doctors in Queensland, South Australia and the Northern Territory.</p>
<p><strong>Beneficiary:</strong> A person or institution, such as a charity, who can receive part or all of something from a will or trust. You’ll see this word used quite a bit, particularly when your attorney drafts your will.</p>
<p><strong>Enduring guardianship or enduring power of guardianship:</strong> Where an enduring power of attorney allows your attorney to make decisions on your behalf when it comes to your assets, if you lose the capacity to make those decisions yourself, an enduring power of guardianship allows your guardian to make decisions on personal health and lifestyle options. It is another legal document that authorises a person of your choosing to make decisions on your behalf. Your appointed guardian cannot make decisions about your assets and finances. This person can however make decisions about where you live, the support services you have access to and the treatment you receive if you unable to do so yourself. In the ACT the functions of a guardian can be met by an attorney under a Power of Attorney. In South Australia, the functions of a guardian can be met by an Advance Care Directive. In Victoria and Western Australia, a guardian has some limitations on the decisions that he/she can make and can be overruled in relation to medical treatment decisions if you have appointed an enduring power of attorney (medical treatment) (in Victoria) or if you have made an Advance Health Directive (in Western Australia). In the ACT and Queensland, you cannot appoint a guardian, but you can appoint an attorney under a power of attorney who can make the same decisions as a guardian.</p>
<p><strong>Estate plan:</strong> Many of you may already know what an estate plan is or have one in place but for those who don’t, it’s basically a plan of where your assets are distributed at your passing. Generally, the key documents that will form your estate plan include: will (which could include one or more testamentary trusts), superannuation death benefit nominations, power of attorney, enduring power of guardianship and advance directive. If you have made a binding death benefit nomination for your superannuation or insurance policies, your nominated beneficiaries will override anyone outlined in your will. There are specific rules however in relation to fee you can nominate to receive your super. An effective estate plan can also pass control of other assets that you may not hold personally, such as assets held by family trusts and family companies.</p>
<p><strong>Executor:</strong> A person appointed by your will to administer your estate when you pass away. Basically, this person will make sure all of your debts are paid and that any assets and possessions you outlined in the will go to where you stipulated. The executor is nominated by you and becomes your legal personal representative. More than one executor can be nominated although if you do this, then you need to specify whether those executors must make joint decisions (they all agreed), or can make decisions on their own, or you include some other basis for how decisions will be made (for example by majority vote). An executor’s role generally involves notifying the beneficiaries, paying any outstanding taxes and debts, and distributing your assets as instructed in your will.</p>
<p><strong>Intestacy:</strong> This is the word used to describe when a person passes away without leaving a will. The person is said to have passed intestate. That person’s estate would then pass to specified next of kin according to a set statutory order. If no eligible recipients can be found for your estate to be passed on to, then according to the law, the state is entitled to keep everything. Basically, the biggest drawback to not making a will is that you have no say as to who inherits your assets. It’s also more expensive to administer an estate without a will, with the extra cost deducted from your assets.</p>
<p><strong>Power of attorney:</strong> If you’re planning on going overseas for a holiday or going to hospital for a month-long stay, it could be a good idea to make a power of attorney. By making a power of attorney you’re basically giving another person the authority to make legal decisions about your assets and finances on your behalf. You can limit the scope of a power of attorney, for example so that it only applies to specific assets or for a certain period of time. If you’re looking longer term when planning for your future, it may be better to make an enduring power of attorney. The difference between a power of attorney (also known as a general power of attorney) and an enduring power of attorney is that a general power of attorney will stop if you lose the capacity to make your own decisions. An enduring power of attorney (as the name suggests) will remain in place even if you lose the capacity to make your own decisions. In the ACT and Queensland, your attorney can also make the same decisions as a guardian in relation to personal health, medical and lifestyle decisions. In Victoria, you can appoint an enduring power of attorney (medical treatment), which will overrule any guardian that you may have appointed, in relation to medical treatment. In the Northern Territory, legislation was introduced starting from 1 July 2014, which means that you can no longer appoint an enduring power of attorney.</p>
<p><strong>Testamentary trust:</strong> This is a trust set up inside a will that only takes effect when the person who creates the will, passes away. The main benefit of a testamentary trust is to provide greater control over the distribution of assets which are held by the testamentary trust, to beneficiaries set out in the will. There are also tax and asset protection advantages to testamentary trusts, making them an effective estate planning tool for some people. It differs from a family trust which is created by deed and commences during your lifetime. The testamentary trust will be administered by a trustee who is usually appointed in the will and who must look after the assets for the benefit of the beneficiaries until the trust expires.</p>
<p><span style="text-decoration: underline;"><em><em><strong>This article is for general information only and cannot be relied on as legal advice. You should seek formal legal advice on your specific circumstances.</strong></em></em></span></p>
<p><em><em>Image credit: Shutterstock</em></em></p>
