I am going to apologise in advance. None of us want to talk about death.
But you must.
As a nation, we are not good at talking about death, and as a result, we are under-prepared.
It is estimated that 60% of adult Australians do not have a will.
And I have heard all the excuses, too.
‘I don’t have that much so it’s not worth it.’
‘My situation is complex, so it is going to be a hassle to organise.’
‘It will be expensive.’
People who tell me they don’t have much are surprised to find they actually have quite a lot.
Those who think it is complex now have no idea how complex it is going to be when they are not here.
And yes, it might be expensive to set up. But nothing compared to the cost it will be to sort out once they are gone.
There is no such thing as a good death. I have been told that those who are suffering because of old age or pain have been spared that, and so it was a good death. I am not so sure. What if you just happen to end up in hell? From what I hear, the place is not exactly a great place to have a picnic. According to every single religion, we lowly humans have sinned. And that means we are all doomed.
But that does not mean those that you leave behind should be doomed trying to sort out your affairs. So, a good death, from their point of view, looks like this:
1 Have the conversation
Talk about your death and your wishes with your family. Hard, I know. Prior to my heart attack, my wife refused to talk about my death. It was as if she did. Somehow, my death could come earlier. But now she at least has an interest.
If, like me, you happen to be the only person who knows their way around the family’s finances, this is going to be a problem. You need to give them the bare bones or leave a set of detailed instructions. Most people do not think their financial lives are complex, but in reality, most are.
2 Choose your executors but choose wisely.
Your executors will be responsible for carrying out the instructions left in your will.
You can appoint several and should have at least two, one as a backup in case the main person is unable to act.
Choose wisely. Very wisely.
They need time to do the work, the process is complex, and decisions need to be made. There is some maturity required too so your 18-year-old kid may not be the most ideal person.
Most will choose their spouse, which makes sense. But as we all know, death can have a devastating effect on those left behind. Will they be able to cope with the added burden of dealing with probate?
3 Think about tax
Inheritance tax does not apply in Australia. But do not assume everything gets passed down tax-free.
Superannuation balances can become taxable. And if assets are inherited and sold afterwards, tax may be payable, too.
This is where tax planning becomes important. This tax planning must be done before death. It cannot be done afterwards.
So you can decide not to plan for it and pay the taxman a crapload of money, or you can plan for it and pay hardly anything. Your choice.
4 Don’t Forget Life insurance
Life insurance policies pay out a tax-free lump sum when you die.
If the policy is within Superannuation, then how and who it is paid too will depend on what you have advised the Superfund trustee to do.
If you have a nomination to say it goes to your spouse, it falls outside the estate and goes directly to them. If you have nominated your legal representative (executor) or have not nominated at all, it goes to your estate and is distributed per your will.
There are binding and non-binding nominations, so make sure you know what you have in place. A binding nomination means the superfund MUST pay according to your wishes. A non-binding one allows the trustee to consider your wishes but does not have to follow them.
5 Powers of Attorney (POA)
While not strictly a plan for death, it is an important part of estate planning.
If you become incapacitated, what happens? Who makes decisions?
Believe it or not, if you are unable to make decisions because of incapacity, then the only person who can make decisions is a judge – someone who does not know you or know what values you have.
And do not assume you have to be old to become incapacitated. About 10 years ago, we had a client who had a 19-year-old child who was involved in a car accident. She was unconscious, so she could not make medical decisions. The doctors wanted to undertake a procedure which the child’s parents thought their child would not want.
Too bad. As the child did not sign a POA appointing her parents, they had no say. If they wanted to change the medical treatment they would have to go to court and convince a judge.
There are two types of POA – medical and financial.
Medical is obvious – whoever you appoint can make medical decisions on your behalf. Financial means they have the right to make financial decisions on your behalf.
6 Who will look after the kids?
If you have minor children, you need to consider who is going to look after the children if both parents are not around.
By experience, I will tell you that grandparents will happily step in. In fact, they will be prepared to argue over it. But even the best grandparents are probably not ideal guardians.
Here’s why.
A four-year-old child can be a handful for any parent. Now imagine a 60-year-old grandparent who needs a knee or hip replacement trying to look after a four-year child. It could be worse if you have 2 little monsters running around causing havoc.
Or a young teenager who wants to hang out with their mates at 10 pm. Will a grandparent really understand the generational gap that even parents struggle with?
As a general rule, I tell clients to stay away from having grandparents being guardians. It is tough on the kids and tough on the grandparents.
My advice would be to have guardians who may be of a similar age or generation to you. And think about if these guardians will have similar views and values as you do because this will rub off on your children.
Whatever you do, make sure you speak to those you identify as guardians. The worst case is when they have no idea and suddenly realise they have just inherited 2 kids.
7 Testamentary trusts
I could write an entire book on this, so a few sentences are not going to do much justice to the topic.
Testamentary trusts are great for asset protection and if you have minor children.
Under a will, assets go to your children once they become adults—18 years old. But if an 18-year-old gets $1m, what are the chances they will spend it wisely?
But let’s say, on the off chance you have the most responsible child on the planet, but they marry the love of their life only to find their partner is not actually the love of their life. You may find the person who is not the love of their life walking away with 60% of your $1m.
To avoid mismanagement of your money and to protect it, you can leave your assets and estate in trust. It usually preserves your wealth and protects it too.
8 Write a letter of wishes
Write a letter of wishes to those managing your estate that explains how you would like your assets to be dealt with.
But it is not legally binding.
You could include the age at which you wish beneficiaries to receive their inheritance if these assets are in a testamentary trust. You can make specific requests if you want to here as well.
9 Get a Proper Will
One of the worst things you could do is to die without a will. The second worst thing is to try and DIY it.
You need a professional full stop. We facilitate will creation, or you can go to a lawyer who will specifically write up a will for you.
10 Create a file
No point doing all the prep work if your family members do not know where to find the information.
Pull together a folder that includes your will, POA, letter of wishes and list of assets, and make sure your family and executors know where it is kept. You might also want to let them know how they can access passwords for online banking as well as social media accounts.
Estate planning is step 9 of our 9 steps to working less, earning more and creating wealth. If you would like to know more, contact Hitesh at hitesh@medisuccess.com.au or call 07 3161 9548.
