As financial advisers, a huge part of our role is helping people plan… plan to buy a first home or an investment property, plan for retirement, plan for financial decisions such as starting a business or family, and just as importantly, plan for when things go wrong…
I know it’s not fun to think about what would happen if we died, or became disabled or seriously injured, or diagnosed with cancer or a major illness. I personally spend way too much time dreaming about what I would do if I won lotto, the reality is I have a 1 in 383,838 chance of winning… however I have a 1 in 4 chance of being diagnosed with cancer, ugh grim I know.
It’s no secret many of us Kiwi’s are guilty of having a “she’ll be right” attitude, and whilst sometimes ignorance may be bliss, the fallout of not being prepared can be catastrophic, especially for our loved ones. So, let’s get real and have the hard conversations…
One of the most important things you can do, which is often ignored or put in the too-hard basket is estate planning. This includes things such as wills, trusts, and enduring power of attorneys. For most people it is as simple as having a will in the event you were to pass away. So, let’s look at what happens if you die without a will…
If you die without a will, it is called dying intestate… As an upfront and honest person, I am going to be blunt, dying intestate and leaving your loved ones to navigate that process and pick up the pieces after losing you is a serious stitch up, and makes an already horrific thing that much worse.
If you have assets worth more than $15,000 (that includes things like KiwiSaver), your estate must go through a legal process and be distributed as per NZ law, this can take anywhere from 6-24 months.
Once the court has appointed somebody to administer your estate, they then have to figure out how to get affairs in order, i.e. clear or close debt, pay bills, close bank accounts, close and cancel utilities and services, gym memberships, phone plans, and so on. Even things like accessing social media accounts can become a nightmare.
Then it comes to distributing the estate, without a will this is done in accordance with NZ law and dependent on your situation. Are you single, in a relationship, have children etc? You can find out more about how this is distributed here
Now I would be lying if I said wills were perfect and fool proof, because they aren’t. They can be argued or challenged in court and can still become complicated in some instances, but most of the time they are pretty seamless and having one is always so much better than not.
John and Jane are in their late 30’s and have two young kids. John is the main income earner as Jane looks after the little ones. They own their own home, have exciting plans for their future and life is good.
John unexpectedly passes away. John and Jane never got their wills sorted or spoke about what would happen if either of them were to pass away. John does have life insurance, but Jane unfortunately isn’t a policy owner so cannot access the funds and it is instead paid into his estate.
Jane deals with the loss of her husband, whilst looking after the little ones. As John’s income has stopped but Jane cannot just access his life insurance or estate, she must figure out how to come up with the money to pay the mortgage or risk losing the house that she and John made their home.
It takes 10 months for John’s estate to be administered and distributed, and for Jane to be able to access any of the funds. Jane went from a stay-at-home wife/mum to a single mum working part-time and relying on financial support from friends and family to get by.
John unexpectedly passes away. Jane owns John’s life insurance policy and can claim against his insurance, providing her with immediate financial relief. She has the funds for his funeral and to cover the mortgage and household expenses for the next 5 years. Jane can go through the grief of losing her hubby without the added financial stress.
John and Jane had wills in place and his entire estate was seamlessly transferred to Jane within a few weeks. Above that, John had made sure that if anything ever happened to him, Jane would have everything she needs to make things as stress-free as possible. He had all the information about their financial affairs in one place, he kept a log of passwords for everything, and he even had funeral instructions that Jane could follow.
This “example” is something we see all too often, and the key difference is literally just having a will, some good insurance advice, and some forward thinking.
Hopefully, you’re picking up what I’m putting down here…. It PAYS to have a plan.