ESTATE PLANNING –
MAKING THOSE LIFE AND DEATH DECISIONS
WHERE THERE IS NO WILL THERE IS A WAR
- Estate planning
- Going guarantor for your children
- Superannuation and the family home
- Making an Enduring Power of Attorney
Estate planning seems a fancy term for what is essentially taking practical steps not only to make sure that your assets go to the right people when you die but to ensure that your life continues to go smoothly despite the loss of physical and mental capacity by appointing the right people to manage your affairs.
It is also about making the right financial decisions now to ensure a comfortable retirement.
Planning for your retirement.
Our parents didn’t really have much choice when they retired. They worked all their lives, accumulated modest savings, perhaps a few bank shares or shares in Telstra or BHP and retired on the aged pension usually owning their own home which was the only real asset in their estate.
Today we have many more opportunities to accumulate wealth and the average person now has a diversity of assets to support them in their retirement and to gift to their families when they die. When planning for your retirement you should not only consider all of the assets you have (including insurance, super and any interest you may have in a company, business or trust) but also the best, most tax effective way to enjoy those assets during your lifetime and to dispose of them on your death.
When making investments or taking out insurance you should avoid making impulsive or ill-informed investments. Getting financial advice and developing an investment strategy is a good way to ensure financial security when you are older. This may sound expensive or beyond the needs of the average person but in its simplest terms it means acquiring property that brings long term benefits to you, insuring and maintaining that property and disposing of the property in a way that gives you the maximum benefit and the least amount of concern.
Over a life time, the most significant investment the average person makes outside of superannuation, is the family home. Buying your own home not only provides accommodation, comfort and security, it represents a large part of your worth and hopefully over time as it increases in value, the capital gain that you make from your investment in your property helps ensure a financially secure retirement. Here are some dos and don’ts that you should consider when dealing with your property.
Don’t – be a Guarantor
Most people work their whole lives to achieve some measure of security in their old age and to be in the position to help their children both during their lifetime and after their death.
This is particularly so when your children go to buy their first or even a subsequent home. High house prices and strict lending practices mean that hopeful home buyers are turning more often to the ‘bank of mum and dad’ to help them get into the increasingly competitive housing market.
We all want to help our kids but you should think carefully before committing yourself to guaranteeing a home loan or other loan facility for your children.
These guarantees are often secured by a mortgage over your home to the extent of the amount you guarantee. If the guarantee is not capped to a certain amount, for example, the deposit, you may find that your home helps to secure the whole of the mortgage. This will impact on your ability to deal with your own property because you will require a release from your children’s bank before you can sell or otherwise deal with your own home including if necessary, obtaining a reverse mortgage to finance those necessary repairs or that holiday of a life-time.
If you sell, you may find that part of your sale’s price must be paid to this mortgagee. This can be a real problem if you need those funds to rehouse yourself or even to pay an accommodation bond in a retirement home.
Lending to family
If you want to help your children, you should consider lending them the funds and securing the loan with a registered mortgage over their property even if you are not charging interest or don’t expect them to make repayments. This will ensure that you will recover the funds when the house is sold, particularly if the house is sold because of a family property settlement.
Do use your property as a financial resource
Most people currently approaching retirement came to superannuation quite late in their working life and may not have enough in their superfunds to ensure not only a comfortable retirement but sufficient funds to do those things that you always dreamed of doing when you retired.
Instead of saving for retirement, you probably pursued the Great Australian Dream of owning your own home. The family are grown and gone and you are now sitting in a house that is not only too big for your needs but is becoming increasingly difficult to maintain particularly if you are on a limited income.
In an effort to increase the pool of suitable houses for families currently struggling to enter the property market, from 1 July 2018, you will be able to sell your home and invest up to $300,000.00 each in your superannuation fund.
The main criteria are that you are over 65 years old and have owned your home for over 10 years. This is a one-off payment to your super and cannot exceed the sales price of the house. The payment must be made within 90 days of selling your home but may be extended in particular circumstances. Where this may be particularly helpful is if you want to downsize or move into a retirement village. Having extra funds in your superannuation means a tax effective way of investing the surplus proceeds.
Do make an Enduring Power of Attorney
I am often told by clients who come to give instructions for a will that they don’t need to appoint an attorney yet. They will wait until they need one.
Yes, you may be in good health and in possession of all your faculties, but the problem is that if you wait until you need one to appoint an attorney, you usually don’t have the capacity to make that appointment.
The capacity to appoint an attorney is the same capacity you require to make a will and the powers of the attorney are similar to that of an executor or trustee. An attorney is your legal personal representative who can do all of the things that you could do for yourself if you had the capacity to do so. An enduring power of attorney is sometimes called a living will.
Whilst most couples hold their property jointly and whilst medical practitioners and welfare agencies will defer to the spouse as the next of kin, problems arise if you want to dispose of property and your partner does not have the legal capacity to execute the documents or financial institutions or pension funds will not deal with you because of privacy issues and your partner does not have the capacity to give instructions. An enduring power of attorney is like an insurance policy. You make the appointment with the hope that your attorney will never have to act.
Like all testamentary instruments, the appointment is not set in stone. Just as with a will, the appointment may be revoked if required and should be reviewed from time to time as needs and circumstances change.
Please note that this is general advice only and may not apply in your circumstances. For more detailed advice please call and make an appointment.
SEE PART 2 OF THIS BLOG WHERE WE DISCUSS THE IMPORTANCE OF HAVING A VALID WILL.