Where there’s a will . . .
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.