Finance expert Noel Whittaker shares his top money tips for getting the new year off to a stellar start.

The startof a new year is the perfect time to take stock of your financial affairs, and if you are a senior citizen, one of the major aspects is estate planning.

This involves giving realistic instructions as to who will handle your affairs if you become incapacitated, and then making sure your will is up to date to ensure your assets are dispersed upon your death in a way that would be aligned with your wishes — and is effective for tax purposes.

Estate planning is a topic that is too big to be covered in one big chunk. Therefore, today I will discuss the implications of making a will, and next month will move to Enduring Powers of Attorney and Advance Health Directives.

It is a simple matter to make a will but, as there can be serious legal consequences involved, it is best to spend the money to have it done by a solicitor. Certainly, you can pick up a do-it-yourself will kit cheaply online or at a stationery shop, and this may suffice if all you are going to leave is the family home and a few hundred dollars in the bank.

However, if you have been following my advice over the years, you will probably leave much more than that, so you may as well do the job properly. Remember that leaving a badly drafted will can sometimes be worse than leaving no will at all.

Leaving a badly drafted will can sometimes be worse than leaving no will at all.

Both your solicitor and your financial adviser should be involved in making the will. It’s a fact of life that most people don’t completely understand their assets, and this is particularly true in a couple if one family member has traditionally handled the money.

Your financial adviser will be able to provide a list of managed funds such as unit trusts, insurance bonds and superannuation, and also brief the solicitor on the social security implications. As I have mentioned in previous columns, couples usually leave all their assets to each other. If they are receiving a part age pension as a couple, this can result in the surviving partner losing the age pension and the precious health card if one of them dies.

A good will should take this into account and, if appropriate, ensure that enough assets are left to family members such as children, to ensure that the surviving partner stays under the Assets Test cut-off point for the single age pension.

Prior to preparing your will, you should list every asset of substance and then ask:

  1. Who do I want this to go to?
  2. Will there be capital gains tax if it does?
  3. If capital gains tax is payable, who will pay it?

You should also think about what you wish to happen if a beneficiary dies before you, or if you and your spouse die together.

To protect the estate from your will being contested, you should specify why a particular person is receiving only a small bequest. For example, if your eldest son has received generous help along the way to the detriment of the other children, your will should state why the others are getting more than he is. It also pays to mention by name, and with reasons, other people who are to be left nothing under the will if there is a chance they could lodge a claim on the estate.

It pays to mention by name, and with reasons, the people who are to be left nothing under the will.

Remember, too, that some assets can grow in value. Therefore, if you expect to live for many years, it might be better to express some bequests as a percentage of your estate, and not a fixed dollar amount.

Anybody of sound mind over 18, or anybody younger than 18 who is married, has the legal capacity to make a will. The will lasts until it is revoked but, as a revocation is automatically inserted in a new will, we could say it stands until you make a new one.

Updating Wills

Life is a dynamic experience, and there are many circumstances that may come along that make it a good idea to update your will. Obviously if you get divorced, or enter or end a de facto relationship, your will needs to be changed — those occurrences do not automatically revoke it.

For older people the most common occurrences are having grandchildren, the death of a beneficiary under your will, disposal of assets specifically included in the will, and if the executor or trustee appointed in your will dies or becomes unwilling or unsuitable to act for reasons such as age or illness. Of course, a major change in your financial circumstances could also be a time for a change in your will.

Joint Tenancies

You should understand the difference between assets held as joint tenants, and assets held as tenants in common. Joint tenancies are known in law as ‘will substitutes’, inasmuch as they take the place of a will and even have precedence over the will. If an asset (such as a house) is held in joint tenancy, the entire asset passes to the survivor upon the death of the other joint tenant, irrespective of what the will states. This happens even if the deceased dies intestate, in which case the balance of the estate is divided in terms of the laws of intestacy. If assets are held as tenants in common, the part owned by the deceased may be transferred in terms of the will.

If you do not fully understand the importance of this automatic transfer of ownership, and don’t ensure your assets are held in the right names, your property may not pass on at your death in the manner you hoped.

For example, Mrs Green was widowed and then remarried late in life. She had two children from the first marriage. Her second husband was well-off and her intentions were that her husband retain their home on her death and that the balance of her assets be divided between the two children. She made her will just after she was married.

Three years later the couple used a large part of their assets to buy an expensive unit at the Gold Coast to use as a winter retreat. They sought no advice and bought this property as joint tenants. She died a year later and the unit automatically went to her husband. This deprived the children of the money she had invested in this asset and all they can do is hope the husband will transfer half the property to them. If he refuses, they have no legal rights.

And finally, make sure that the special people in your life know exactly what to do in the event of your death. You should prepare a document listing the location of your will and documents such as your power of attorney, and also list the names and contact details of your solicitor, accountant, financial adviser and any other person who is involved in your affairs.

Make sure that the special people in your life know exactly what to do in the event of your death.

If you have a specific funeral director you wish to use, and have instructions for your funeral, these should also be noted in this document.

It’s a good idea to share this document with your special people, and discuss the contents with them. It may save a lot of pain and trouble in the future.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. Seek advice from a professional before making any important financial decisions.