Where there’s a will . . .

The Sunday Times - - BUSINESS WEEKLY - Noel Whit­taker

PEO­PLE’S at­ti­tudes to money are amaz­ing. They’ll spend most of their lives work­ing for it, wor­ry­ing about it, and fight­ing over it, yet many won’t give more than a pass­ing thought to what will hap­pen to it when they die.

Nearly 50 per cent of peo­ple die with­out a will, and most of the re­main­der seem con­tent to use a do-it-your­self form from a sta­tionery shop, or grab the first free of­fer they can find.

This is an un­for­tu­nate at­ti­tude be­cause the cost of hav­ing no will, or a badly drawn-up will, is far higher than the le­gal fees to get it right in the first place. One of the most com­mon mis­takes is for a cou­ple re­ceiv­ing Cen­tre­link ben­e­fits to leave all their as­sets to the sur­vivor in the event of the death of one of them. The prob­lem arises be­cause the Cen­tre­link in­come and as­sets tests are dif­fer­ent for cou­ples and sin­gles.

Let’s think about a cou­ple in their early 80s who own their home, as well as a car and per­sonal ef­fects worth $30,000.

They also have su­per, bank ac­counts and other in­vest­ments to­talling $560,000. As a cou­ple, they are en­ti­tled to an aged pen­sion of about $18,500 a year.

If one of them dies, and all as­sets are left to the sur­vivor, that per­son will be over the limit for the sin­gle pen­sioner as­sets test and will lose their pen­sion en­tirely. That’s a dou­ble whammy — los­ing your part­ner and your pen­sion si­mul­ta­ne­ously. If the will had left part of the fi­nan­cial as­sets to their chil­dren the sur­vivor would have re­tained a part­pen­sion.

As al­ways, the so­lu­tion to the prob­lem is to pre­pare for it. Long be­fore death is im­mi­nent it is wise to in­volve the en­tire fam­ily to reach agree­ment on what as­sets will be left to in­di­vid­ual fam­ily mem­bers if there are any, or other peo­ple or en­ti­ties if there is no fam­ily. In the ex­am­ple above, the cou­ple were both el­derly and it would be rea­son­able to as­sume that their needs for a big sum of in­vest­ment cap­i­tal would be less than they once were.

They cer­tainly can’t make gifts now be­cause they would be hit by the Cen­tre­link de­pri­va­tion rules, but they could frame their wills so that some as­sets could be left di­rectly to other ben­e­fi­cia­ries when one of the part­ners died.

Sup­pose this cou­ple had three chil­dren, and changed their wills so that $100,000 of in­vest­ments went to each child on the death of ei­ther par­ent. The out­come changes com­pletely. The as­sess­able as­sets for the sur­vivor would re­duce to $290,000 and in­stead of los­ing the en­tire pen­sion, they would get a small in­crease.

The pen­sion would rise to about $20,300 a year. The sur­vivor would have the plea­sure of watch­ing the chil­dren ben­e­fit from the legacy, and would re­tain an un­en­cum­bered prop­erty, $260,000 of in­vest­ments and an in­crease in pen­sion.

Just re­flect on that for a mo­ment. If the sur­vivor lives for 10 more years, the value of the pen­sion over that time would be close to a quar­ter of a mil­lion dol­lars, while the peace of mind that would come from re­tain­ing the pen­sion and watch­ing the chil­dren en­joy the legacy would be price­less. All for a cost of a few hours and maybe a cou­ple of thou­sand dol­lars.

Al­most ev­ery­body you know will have some story about has­sles caused by a badly pre­pared will, or worse still — no will at all. That’s a pity, be­cause it doesn’t take much prepa­ra­tion to stop these types of prob­lems be­fore they arise. Just make sure you in­volve your solic­i­tor, your fi­nan­cial ad­viser and your ac­coun­tant when draw­ing up or re­view­ing a will — each is a spe­cial­ist in a dif­fer­ent but im­por­tant area. Noel Whit­taker is the au­thor of Mak­ing Money Made Sim­ple. His ad­vice is gen­eral in na­ture and read­ers should seek their own pro­fes­sional ad­vice be­fore mak­ing fi­nan­cial de­ci­sions.

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