Estate planning for life after death isn’t exactly something most of us put at the top of our priorty list. Unless it’s “Salmon Mousse” by Monty Python most of us would rather laugh at the reality of death than plan for it. However, planning for the afterlife, that is, planning for the death of your spouse, mother, father, a close sibling or friends is one of the most powerful exercises one can undertake.
Planning for life after death can be the difference between having a warm memory of a loved one or the bitter memory of the pain, fighting and bureaucracy that comes hand in hand when someone dies without a giving any guidance via a Will and Last Testament. Perhaps then it may surprise you to find out that one of the most rewarding elements of a financial adviser’s job is when we see plans executed that save clients’ time, money, heartbreak and headache after their spouse or loved one passes away.
This article aims to have a look at the grim realities of death from a financial planning perspective and gives you a few simple tips that will make all the difference for your life after death. Here’s a little video from Monty Python to uplift you before we get started.
From a financial planning perspective, Estate Planning is one of the most important elements of our role when helping clients to understand their financial affairs. Questions we consider include:
- Will you have to pay inheritance tax or will you be exempt?
- How do the assets transfer into my name?
- Who will manage the Estate?
- What happens if I become disabled and need someone to look after my financial and medical needs?
- What happens to our children?
- Where will I find the extra income once my partner dies?
One of the most rewarding parts of our job as financial advisers are being a part of people’s realisation of the wealth that they have accumulated and putting plans in place that mitigate stress. You may think that you do not have significant assets, however, once you start to tally the value of your assets you may be surprised how quickly it adds up.
For example, think about the current market value of your assets including your home, the value of your car, investments, savings, bonds, superannuation/pension, life insurance payouts or any other policies that pay out upon death.
The famous American philosopher Christopher Wallace said it best when he wrote, “It seems like the more money we come across, the more problems we see”. Capital Gains Tax (CGT) issues, dealing with the Public Trustee, Lawyers and trying to gain access to funds to pay for everything are just the start.
It’s not uncommon for families to argue and even fragment over estates that are poorly organised and that have little direction from the deceased. We’ve seen absolute tragedies where spouses, carers and loved ones are left completely sidelined due to the lack of an Estate Plan. Battles seem to be most prevalent in families where parents have been remarried.
So how do you avoid your family disagreeing after you are gone or avoid the arguments if you are left behind and grieving? With proper Estate Planning, you can avoid heartache, stress and potentially increase the value of the estate by avoiding paying tax unnecessarily.
Here are three simple steps to simplify life after death:
- Write out a list of your assets.
Human beings love making lists as they bring order to chaos, help us to remember things and can be a long or short as necessary. When it comes to writing our a list of you assets the best place to start is to list everything you can think of! This includes property, investments, savings, insurance policies and any business interests. Then think carefully about whom you want to inherit your assets whether they be your spouse, partner, children, a best friend or Mum and Dad.
Sound simple? Sometimes it can be, but more often than not it’s a good idea to involve the family and have an out in the open, dynamic discussion about your intentions. To lighten the mood I recommend cracking a good bottle of wine and have a light hearted but robust discussion with your loved ones. Not only will this help everyone to get on the same page, but it could potentially save your loved ones from having a family rift after you are gone.
Need more 10 more reasons why writing lists are awesome and helpful? Check out this great article from NPR.
- Plan to reduce your inheritance tax liability
Plan ahead and you will be able to reduce your inheritance tax liability and make sure your estate goes to your chosen beneficiaries. A financial services firm such as SALA Financial Services can highlight many of the areas that you might need to address when looking at your inheritance tax liability such as how to appropriately.
Planning can be as simple as leaving everything to your spouse in your Will, appointing executors to your estate, updating binding death nominations through your superannuation or drawing up Power of Attorney documents. However, for those who have more complicated affairs such as joint property holdings with their kids or other relatives, it may be important to look at whether Trusts can help you to avoid running into additional tax and legal problems further down the track.
Trusts are legal structures that allow you to place conditions upon how and when your assets are dispersed on your death. For example, recipients might have to reach a certain age before they have access to the fund. Alternatively, perhaps a particular figure from the initial sum is released at regular intervals to help with monthly expenses. They can also generate money so payments can be made to the beneficiaries without touching the original capital sum. The benefits of trust structures are clear and numerous; it is simply a matter of deciding whether they are right for you and your family.
- Write a Will.
We cannot stress the importance of getting your Will done. If you have done all of the legwork getting your Will done doesn’t have to be a stressful or expensive experience at all. A good financial planner should be able to get you ready to walk into a solicitor’s office to have your Will written without having to have a long, expensive meeting. Cost is always important, so you should ask you financial planner for a referral to a solicitor who will charge you a reasonable fee to help you with your Estate Planning needs. Finding a lawyer who won’t rob you blind is perhaps most beneficial for those who have complex.
What about the kids? If anything should happen before your children are old enough to look after themselves, then your Will is also a good place to name their guardians.
Ensuring your Will is up to date is also important. What worked for you 5 or even 10 years ago certainly may not be appropriate for you today. We encourage clients to read their Will once every three years just to make sure it’s still relevant and in line with their wishes.