The major mistakes we make in estate planning
Financial advisor Tim Fairbrother takes us through the major mistakes we make in estate planning, and tips to avoid these common pitfalls.
Do you have a solid financial plan in place to create, protect and grow your wealth? What if something unexpected occurred? What would happen to you and your family?
If you're even a bit unsure, then please read on.
Renee
Renee's twins have just started school which has prompted her to think about guardianship. It can be difficult deciding who should care for your children if you and your partner died and Renee is typical of many parents who put off this decision.
In the short term, Renee's parents seem like the obvious choice as they care for the girls already while Renee is at work. But recently her father had a health scare which resulted in a short stint in hospital.
Even though he's now fully recovered, it highlighted to Renee that her parents are getting older and increasingly vulnerable. If something happened to her, could they cope raising the girls full-time?
Her brother would be another option, but his wife is not keen on having children and doesn't appear to bond particularly well with the twins. So, Renee has narrowed her list down to a couple of close friends.
They both have attributes that closely align with Renee's values so a pros and cons list might help her make a decision.
While her parents won't be guardians, Renee's friends would keep in close contact with them to ensure they remain a large part of the twin's lives.
Top tip: Talk to your family about guardianship and update your will accordingly so that everyone knows where they stand. Don't relegate this to the too hard basket! Take care of it today.
Warren and Judith
Warren and Judith have forged ahead to significantly reduce their spending. Their financial health has improved and if they stay on track, they'll be set for a comfortable retirement.
However, Judith is now concerned about Warren's physical health. He's become quite forgetful, and she's particularly concerned about his short-term memory. Warren's father was diagnosed with Alzheimer's in his early 60s but Warren is refusing to visit his GP.
A family friend has suggested Judith makes certain their wills and enduring power of attorney (EPA) are up-to-date. There are two types of EPA - one for property and one for personal care and welfare. It's essential Warren and Judith have the right people in place to make decisions on their behalf if required.
Two of Warren and Judith's three children live overseas which means they're not ideal candidates. Their daughter currently living at home has agreed to take responsibility for their personal care and welfare.
But she's less confident when it comes to financial decision making so Judith has asked their nephew, who's just set up his own accountancy firm.
Because their current wills and EPAs haven't been reviewed for more than 12 years, this needs their urgent attention. Hopefully Warren sees a doctor soon as you need to have sound mental capacity when putting a will and EPA in place.
Top tip: You never really know what to expect in life. Seek expert advice for your estate planning. Do NOT leave things to chance.
Darryl and Christine
Darryl and Christine want to do everything they possibly can to make sure their children and their estate are well taken care of should anything unexpected befall them.
Christine's parents died in a car accident when she was 23 years old. They did not have a will in place, and sorting out their estate was a long and very difficult process, especially stressful on Christine and her siblings.
Darryl and Christine are taking action to ensure this never happens to their children.
A vital aspect of their estate planning is protecting their personal lifestyle from any risks associated with their business. After seeking help from a financial adviser, and in addition to having a valid will they have decided to set up a Testamentary Trust.
The intention of the trust is to transfer all their personal assets into the ownership of the trust. This includes their house and all their personal assets. Should their business fail or have some kind of liability claim, the Trust, managed correctly, should offer their personal assets protection.
Because their children are young, they review and update their will every three years. Their circumstances have changed quite substantially over the last five years, so keeping these important documents up-to-date is a priority.
Top tip: While a trust can be invaluable to help you to separate and protect your assets, make sure you have the right type of trust in place. It needs to meet all regulatory requirements so make sure it's managed and administered correctly.
Written by Tim Fairbrother. First appeared on Stuff.co.nz.
* This information is of a general nature and is the opinion of this authorised financial adviser. This is not intended to be personalised financial advice.