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The video below shows the serious need for appropriate cover.
Australians are living longer than ever before and accumulating more wealth in the process. Chances are you not only hope to enjoy your nest egg while you are alive but also to make sure that what remains when you die is distributed according to your wishes. To do that you need an estate plan with an up-to-date will.
An estate plan involves making appropriate financial and legal arrangements to pass on everything you own when you die. This might include the family home, superannuation, life insurance, investments, a business and personal items.
Dying intestate
Dying without a valid will means dying intestate and this can create unintended financial and emotional stress for your family. A will may be invalid if it is poorly drafted or the legal rules have not been followed.
When this happens, debts are paid from the assets in your estate and the remainder is distributed according to a pre-determined formula. As a result, some people may receive more or less than you intended and your estate could be eaten away by unnecessary taxes and legal costs.
It is estimated that as many as 60 per cent of people die intestate and, of the 40 per cent who do have a will, many aren’t sure where it is located, or whether it is validi.
Just like a financial plan, a will needs to be reviewed and updated when your circumstances change, such as with the birth of a child or a divorce. It needs to be signed and witnessed in the correct way and kept in a safe place.
It is a good idea to leave a copy of your will with your solicitor or the executor of your estate so the family are not forced to search the house for it when you die.
A helping hand
The best way to make sure all your affairs are in order is to establish an estate plan with the help of a solicitor. A will is a good starting point, but it should not end there.
Now that we are living longer it is increasingly necessary to have measures in place in case we become mentally or physically unable to cope.
Giving a trusted relative or friend an enduring power of attorney gives them legal authority to look after your financial affairs.
A medical enduring power of attorney authorises a person to make healthcare decisions for you if you no longer have the capacity to do so. An enduring power of guardianship authorises someone to make personal and lifestyle decisions for you if you become mentally incompetent.
Superannuation and Insurance
You also need to take estate planning into account when you invest because issues such as tax and ownership structure can have far-reaching effects beyond the grave. For example, many people are not aware that superannuation and life insurance (whether held inside super or outside) are not covered by a will.
Your financial adviser can work collaboratively with your solicitor to ensure that all your assets are distributed to the people you nominate in the most tax efficient manner.
In the case of superannuation, it may be possible to make a binding death benefit nomination. This allows you to leave your superannuation to the people you have nominated, including your estate. Where it is paid to your estate it will then be distributed according to your will.
The best way of ensuring your all your assets are preserved and end up in the hands of the people you love most is to seek help from a trusted professional. Not only is this the legally and financially wise thing to do, it is a final act of kindness to your family at what can be a very stressful time.
IBAMCY Group Pty Ltd trading as Cedar Wealth Money Managers is a Corporate Authorised Representative of Sentry Financial Services Pty. Ltd. ABN 30 113 531 034 AFSL 286786.
General advice warning: It is important for you to note that all information on this website is general in nature and is not to be construed in any way as advice. Cedar Wealth Money Managers has not taken into account any particular persons objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.
Who pays your debts after you die? Is family liable?
It would be nice to think our debts magically disappear upon death however, this is not the case. If you haven’t planned in advance, financial debts can have a significant impact on those you leave behind. The executor of an estate will be responsible for liaising with creditors to repay debts and will need to manage the assets within the estate to do so. Creditors have first right to the assets within the estate to reclaim their money. If there are insufficient assets, then the estate may have to be declared bankrupt. Creditors have the right to place an estate into bankruptcy if adequate measures have not been implemented to repay debts, and can liquidate any assets held as security over those debts.
Can family members be liable?
A common concern is that family members will be left to repay debt that is not theirs. A family member or related party of a deceased person can only be forced to repay debt in the following circumstances:
• They own an asset that was used as security on debt obtained by the deceased (e.g. business debt secured against a family home);
• They were a joint borrower on debt with the deceased (e.g. husband and wife borrow to buy a family home);
• They have provided a guarantee over a loan for the deceased (e.g. Mum and Dad being guarantor for their child to purchase a home).
Estate planning debt issues worry many people and can come in very basic forms. Take a husband and wife with a family home and a mortgage for example. If the main income earner passes away the remaining spouse is responsible for the loan and may have no means of repaying it. This might then result in the home being sold unless there were adequate provisions put in place prior to death to prevent this.
Planning ahead
Leaving specific assets that you still owe money on to a beneficiary through your estate requires you to make arrangements to have that debt paid out upon your death – unless the beneficiary is capable of repaying the debt owing on that asset. For example, leaving a house with a mortgage to elderly parents knowing they cannot afford the mortgage on the property. A provision to put in place in this instance would be sufficient life insurance so the creditor is repaid and your parents receive the house debt-free. Business debts, including those that are obtained jointly by business partners, or debts that have personal assets held as security, can create very complicated estate issues. These need to be addressed in your will to ensure the continuity of the business or the remaining partners or family members are not financially affected.
Seek professional advice
These are just a few issues relating to managing debts after death. Estate planning is a complex area and requires strategic planning to ensure loved ones and others are not financially impacted in the event of your death. It is important to use professionals in these matters, such as your solicitor and financial adviser, to guide you on the right path so that all your estate planning needs are covered and adequate measures put in place.
*The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.
Financial goal setting
The financial planning process helps you assess your financial position and identify your personal and financial goals. Clearly setting out your goals puts you in a position to make better choices about how to achieve them.
Your adviser can help you set and reach your financial goals. Whether you are planning for retirement, a trip overseas, your children’s education or for a deposit on your future home, your adviser can help you plan to reach these goals.
What does financial advice cover?
Financial advice can cover a range of areas including:
- budgeting
- tax planning
- investments
- aged care planning
- estate planning
- superannuation
- life and risk insurance
- government benefits that may be available.
Financial advice can help you identify and plan to achieve your financial goals so you can enjoy the lifestyle you want. An adviser will help you assess your current circumstances, identify your goals and priorities, and recommend financial strategies and products that will help you reach your goals.
Build your wealth
Whether you need money to fund your children’s education, take a career break, or achieve something that gives you a better lifestyle, your adviser can build a wealth-creation strategy that enables you to meet your day-to-day living expenses, manage your debt and is tax effective, so you can achieve your goals.
An adviser can help you borrow to invest, accelerate your savings and make the most of your superannuation.
Protecting your wealth
Your world can dramatically change through unexpected illness or injury. An adviser can help you establish measures to protect your wealth and design a tailored solution to suit your needs. With a financial safety net in place you can be better prepared to support yourself and those depending on you, should something unexpected happen.
Why advice is important
Quality financial advice can help you create a secure and comfortable future for you and your family. Because it is based on your goals and priorities it is tailored to suit your needs and puts you in control of your financial future.
For more information on money and getting advice visit the Financial Literacy Foundation’s website – www.understandingmoney.gov.au.
Address your changing family circumstances
As your family circumstances change your adviser can recommend appropriate adjustments to your financial plan. Events that may require a reassessment of your finances can include:
- the arrival of a new family member
- education expenses
- children leaving the family home
- provision of aged care for elderly parents
- illness or injury.
Make debt work for you
Your adviser can help you deal with debt so you get the greatest return. Strategies that may be recommended can include debt consolidation, increased frequency for your mortgage payments or even borrowing to fund additional investments. Your adviser will assess these options in conjunction with your goals and the level of risk you are comfortable with.
Have the money you need for retirement
Your adviser can help you determine the level of savings you need for retirement and provide guidance on those strategies that will deliver the income you need. Your adviser can give you advice on super strategies, government pensions, options around employment and how these choices can affect benefits.
Facing redundancy
If you are faced with redundancy your adviser can help you make critical decisions so you maintain your financial security during this change. Your adviser can help you invest your payout to ensure it delivers long term benefits in a tax effective manner. They will also be able to identify whether you are eligible for government benefits and advise you on how to manage your superannuation.
Knowing your finances are taken care of will leave you free to concentrate on planning your next career move.
Tax strategies & benefits
In developing your financial plan, your adviser will also look at tax strategies to help you get the most from your investments. As a result your adviser may recommend strategies such as income splitting, salary sacrificing to superannuation or tax effective investments.
Are your finances in shape?
Being financially fit is about making sure all aspects of your financial situation are in order. But where do you start? Complete our fact find to assist you identify areas of your finances that are healthy and strong and others that may need some improvement. It’s a good starting point before visiting a financial adviser who can help get your finances in great shape.
Budget your way into the black
$2.2 trillion. That’s how much Australian households owe right now, according to the latest ABS stats.i Household liabilities grew by $1.2 billion in the last quarter alone. Real household debt per person has risen steadily by around 2 per cent per year, and now sits at around $79,000 per person. i
Sound scary? The good news is, there are ways you and your family can buck this trend and ensure your finances stay out of the red and in the black. The key is good old fashioned budgeting.
Why a budget is important
Budgeting is simply the most straightforward, proactive way to ensure you will always have enough money for the things you need whilst allowing you to put a little aside for the things at the top of your wish list. That’s the practical side of it. A budget can also help you reduce financial stress, improve your family relationships, redefine your personal values, and provide a good example for your kids or grand kids.
How to set up a budget
The first step is to do an audit of what you’re spending. You may also need to do a round-up of what you’re earning, if you have several income streams. Start by gathering as much evidence as possible; utility bills, receipts, bank statements etc. Make a tally of your outgoings. Be as accurate as you can; where you don’t have a record to substantiate a line item, try not to underestimate it.
Then, compare your income to your outgoings. If you spend more than you earn, you’ve got work to do. If you’ve got a surplus, that’s a great start, but there’s always room for improvement.
The second step is setting goals. Choosing well defined goals – beyond just ‘save more’ or ‘get rich’ – is important for your long-term budgeting success. Try setting at least a few short, mid and long term goals. For example, in the short term, you might aim to reduce your spend on clothing by $100 a month. In the long term, you could aim to build up an emergency fund equivalent to six months’ household income.
Why budgets fail
If all this sounds familiar to you, chances are you’ve tried and not succeeded at budgeting in the past. That doesn’t necessarily mean you’re ‘bad with numbers’ or lacking discipline. There are several common reasons why budgets don’t stick. Many failed budgets had no defined goals. Others were too restrictive, allowing no room for spending on things like meals out or entertainment; anyone who’s tried to completely cut ‘fun’ spending knows how unrealistic this is. Many budgets also ‘break’ after a short time because they fail to account for unexpected emergency expenses, from vet bills to urgent travel.
Once you’re aware of why your last budget didn’t succeed, you can start to build a better one.
The right technology can help make your budget more accurate, realistic, effective, and easy to stick to. You don’t even have to create a spreadsheet from scratch, or use complicated software on your PC. You can even carry a budgeting solution in your pocket with a handy smartphone app.
Need help?
Source
i ABS, 5232.0 – Australian National Accounts: Finance and Wealth, Mar 2016
ii ABS, 4102.0 – Australian Social Trends, 2014 (Final): Trends in Household Debt
IBAMCY Group Pty Ltd trading as Cedar Wealth Money Managers is a Corporate Authorised Representative of Sentry Financial Services Pty. Ltd. ABN 30 113 531 034 AFSL 286786.
General advice warning: It is important for you to note that all information on this website is general in nature and is not to be construed in any way as advice. Cedar Wealth Money Managers has not taken into account any particular persons objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.
Becoming seriously ill is possibly the worst thing that can happen to a working person – and as you would know from your experience it does happen. According to the Australian Bureau of Statistics 2008 yearbook, 7,624 Australians were unable to work (1) and were reliant on government sickness allowance which today pays just $205.75 each person a week for a partnered person. These unfortunate people are part of the 69 per cent of Australians who don’t have any personal income protection insurance.
With the average Australian mortgage of $367,000 (2), let alone food and car expenses and the costs of raising children, it is easy to see that a prolonged sickness or disability could quickly put most Australian families in a dire financial situation.
What is Income Protection Insurance?
Income protection insurance is a practical and inexpensive way to make sure hard working families are not at risk of quickly sliding into financial strife by providing a monthly benefit of the insured person is injured or sick and can’t work. A person’s ability to earn a living is often their single greatest asset yet Australians are insuring their cars and houses instead of their incomes.
For a healthy, non-smoking male of 35 working as a Chiropractor and earning a wage of $100,000 per annum (and with a waiting period of one month), Income Protection insurance costs $79.40 per month. If he becomes sick the insurer will pay him 75 per cent of his income, or $6,250.00 per month until he is well enough to return to work – or until age 65 when the contract ceases… (The reason the benefit is not 100 per cent is to ensure there is still an incentive to get well and back into a contributing role in society.)
Income Protection Insurance can often be accessed through a superannuation fund, or via a Life Insurance Adviser. One of the significant benefits of the product is that if it is bought separately to superannuation, it is a tax deductible cost, which can significantly reduce its impact on the household budget.
What is the benefit?
Regardless of the cost, the key benefit of income protection is the peace of mind that if a family are unlucky enough to have their primary income earner struck down with a prolonged illness then they should be able to maintain their current lifestyle while that family member is on the long road to recovery.
They know that their insurance is standing with them once any sick leave has been exhausted and there no more salary available. A consultation with a Cedar Wealth Life Insurance Advisor can help ensure that your financial and lifestyle goals are properly protected with a risk protection strategy.
Quote provided by Tower Australia Ltd November 2010. Quotation figures as at 24 November 2010 based the following: Standard Policy, Male, aged 35, non-smoker, Chiropractor – University Qualified, Income Protection, Agreed Value, Benefit Period – to age 65, Waiting period – 4 weeks, Stepped Premium, indexed. No additional extras. This is not a recommendation and the insurance company selected for quotation was done so randomly.
It is important for you to note that in preparing this article Cedar Wealth Financial Advisers have not taken into account any particular persons objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend you obtain financial advice specific to their situation before making any financial investment or insurance decision.
The tax deductibility of income protection insurance premiums makes now the perfect time to consider cover for your most important asset – your ability to earn. Read more