We all like to think that we are going to be debt free, hopefully with a healthy asset position, by the time we take our last breath. Certainly for many New Zealanders it is a high priority to have a legacy to leave behind after we’re gone. But a few clients’ experiences over the past few months have shown that there is more to bear in mind than just an asset position, when it comes to making sure that your surviving loved ones are able to be looked after without financial hardship or additional stress when you die.
The first thing to cover is very simple. Please write or update your will! While everything may appear to be straight forward in life and family relationships as to what happens with your possessions after you die, if you haven’t left clear instructions, then those “obvious” arrangements can soon turn into the cause of family feuds. While most of us may procrastinate for a while, it is important that you don’t put your estate planning off for too long. One of my clients had parents who owned a property in a family trust, which was fine until they both died within a couple of months of each other. Not only had they not written a will but there was nobody else who had been given authority to sign legal documents on behalf of the trust. This led to a long drawn out saga involving two sets of lawyers to just get to a stage where the property in the trust could be transferred to an executor. The situation was further complicated by a debt against the property which was required to be repaid upon the parent’s death. As the family’s wish was to retain the property as a family homestead, one of the surviving children had to take out a loan in order to clear the debt. This brings me onto point number two. Take out some Life Insurance.
The setting up of Life Insurance to clear the liability at time of death would have meant that in the previous example, their legacy could have been enjoyed by the family debt free. In fact a discussion with a registered insurance adviser may have found a solution whereby even a portion of the borrowing could have been repaid from a smaller level of insurance, leaving the beneficiary of the estate with a smaller, more affordable debt. In some situations I have seen Life Insurance which has been set up by the children who stand to benefit from an estate, with them sharing the cost of the premiums as a kind of investment to protect the equity remaining in their inheritance rather than having their parents take out insurance later in life and having to pay a high premium from their own income.
But it is not just the clearing of debts that Life Insurance can be used for. Hopefully most of us have got to a stage of life where our debts are minimal before we pass away. In that case, the amount of Insurance paid out upon your death can be used to cover funeral costs and also to provide an income for those left behind so that they may not have to rush straight back to work at their time of grief. It may even be put into a trust for the benefit of grandchildren.
Your will and memorandum of wishes along with your Insurance policies are working documents that should be reviewed on a regular basis to make sure that they reflect your current situation and to make sure that your wishes are covered as to who gets what, when they get it and how. Even if you don’t want to face your mortality and discuss such things with your family, it’s a good idea to contact your lawyer and insurance adviser today, so that you may plan a stress free future for your loved ones tomorrow.
