In Australia we’re living longer than ever with life expectancy now sitting at 80 years for men and 84 years for women born between 2011 and 20131.
But life can be unpredictable. While you can’t control how and when you’ll die, you can ease some of the burden on your loved ones by making sure your finances and paperwork are in order. So here are some areas you might want to look at.
Making a will
One of the key documents to take care of is your will, which lets your loved ones know how you want your assets distributed.
It’s estimated that nearly half of all Australians don’t have a valid will2, which means the state government will appoint an executor and decide how their assets are divided. To ensure it’s valid, you should seek a solicitor’s help to draft your will, and make sure it’s kept up-to-date as your circumstances change.
Considering your debts
More and more Australians are carrying debt over into their retirement years, with home loans making up almost 30% of debt in households headed by someone aged 65 or older3.
If you have debts when you die, they still have to be paid, so here’s how the debts are categorised and paid.
• Secured debts
This is a debt that’s tied to an asset, such as your home. Any property owned with another person as joint tenants will automatically pass onto them, including responsibility for any loans associated with the property.
If you’re the sole owner of a property, it – and any associated debt – will pass onto your estate. When your estate is settled, debts are paid off first, with the remaining assets passed onto the beneficiary or beneficiaries named in your will.
If your estate doesn’t have enough in assets to pay off the loan, the property may have to be sold. If there’s still a shortfall the bank can pursue your beneficiaries to cover it, which may require them to sell their own assets to make up the difference.
• Unsecured debts
These are debts that aren’t linked to an underlying asset, such as credit card debt. If the credit card account was held jointly with another person the debt will pass onto them. If it was in your name only, responsibility for the debt passes to your estate, to be paid for from your other assets. If there isn’t enough money to cover the debt, your beneficiary may be offered a payment plan, but unlike secured debt, it’s unlikely they’ll be pursued for their own assets to cover the debt4.
Covering your funeral costs
Funeral costs can vary widely – from $4,000 for a basic cremation to around $14,000 for a more elaborate casket, burial and flowers5.
There are a few ways to save for your funeral, including establishing a savings account or term deposit specifically for this purpose. Pre-paid funeral plans, funeral bonds or funeral insurance are other options.
Looking at tax obligations
It’s said that death and taxes are the only two certain things in life, so unsurprisingly, after your death a final tax return must be submitted. If it’s found you owe tax, this has to be paid out of your assets before the rest of your estate is distributed to your beneficiaries6. Conversely, if there is a refund of tax it will be added to the assets to be distributed by your estate.
Checking your life insurance
Life insurance, which pays out as a lump sum after your death, is classified as a protected asset, which means it’s passed directly onto your beneficiary regardless of your debts. But it can be used to help pay these debts, if your beneficiary authorises it7.
You should ideally have enough life insurance to pay off your home loan and other debts. Additionally, if you have dependants, it’s worth checking your insurance would cover your regular income and bills.
Sharing your super
Your super will also be paid out in the event of your death, but its distribution isn’t automatically handled by your estate. To make sure your super ends up where you want it to, you need to nominate beneficiaries with your super fund, and keep the nomination up to date. Depending on who you nominate, there can be tax implications involved.
Having your finances in order isn’t much good if no one knows where to find the details. So keep the documents together – and let your loved ones know where they are.
For more information about estate planning, speak to your solicitor. Your financial adviser can help you get your debts in order and ensure your insurance cover is sufficient. If you need help finding an adviser in your area, call us on 131 267 or use our find an adviser tool.
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Under a new scheme, individuals (who've never owned a home) are accessing a portion of their super savings to do so.