When Life Happens… before you’re ready

Aug 3, 2017

The Importance of planning

All too often we leave the important stuff on the back burner whilst we try to keep up with the daily life that is constantly happening around us.  Running a business, having a young family whilst having a husband that works and spends half of the year overseas – I totally get it. 

Life is busy.  Days fly past so quickly that you wonder where the last eight hours escaped to.  The daily to-do list is forever growing and the ‘I know this is important’ gets pushed back and back until that unfortunate time that life happens to us, when we least expect it, and hits us directly in the face!   The regrettable thing is, whilst we all know we need to do it, most believe the task is far too daunting so they opt for the ‘head in sand’ approach and leave themselves completely underprepared and over exposed.

So how do we get motivated to get the ‘oh so this is so not fun’ to-do list on track and get organised to ensure that when life happens not only are you ready for it – but you and your family have peace of mind that you and their futures are protected.

So where do you start? I find the best starting point is sitting down and working out the gaps.  Ask yourself these questions and see if you are happy with how things may play out.

What happens if you get sick?

Do you have the right paperwork in place for someone to assist you if you are medically incapacitated?

Some of us plan how we wish our monies to be distributed on death but all too often we forget to plan for the possibility that we may become disabled or otherwise incapacitated and need help with financial and health care decisions.

You can have someone you trust make these difficult decisions on your behalf through a power of attorney document.  There are several types of financial and medical attorney options available and we recommend exploring all the options that may suit your requirements.  Advance planning whilst you are fit and healthy is paramount.

Are you adequately insured to meet your living expenses?

Have you considered the outcome of your financial situation should your income stop due to poor health or disability?  Could you maintain your current standing of living and lifestyle costs?  I believe the ability to earn an income is one of our greatest assets – so insuring your income is vital in any financial strategy.

Income protection generally covers a percentage of your income after you meet an agreed waiting period for a defined benefit of time.  This ranges from 1 year through to 70 years in certain occupations.  You may also elect to cover yourself against a critical illness to meet your debt or to cover the gap in your income whilst you are sick.

Having or not having insurance can drastically effect your financial situation.  A financial adviser can assist you with the level of cover that is right for your situation.

What happens if you die?

Do you have a will in place?

A Will is probably one of the most important documents you will ever sign.  Currently statistics show that almost one in two Australians do not have a valid Will in place[1].  Dying without a Will means you die intestate.  Dying intestate will see your assets being distributed according to a pre-determined formula according to the law. Dying intestate can result in your surviving spouse or family suffering unnecessary financial hardship and emotional stress. If you are in a de-facto or same sex relationship, it will be necessary to provide sworn evidence that your relationship ever existed.

However, if you do have a Will ensure that it is valid and up-to-date.  A Will can automatically become invalid if you get a divorce or if it is not signed properly.  It is also vitally important that you update your Will if there is a birth, death, marriage or divorce in the family.

Dying and leaving behind minor children is something no one wants to consider.  However, the outcome of not making guardianship plans can and will have long term, devastating consequences.  Should you pass away without appointing a guardian, your child may be sent into foster care and an uncertain future.

Other things to consider is the age you wish your children to receive your estate and what would be the most optimal tax outcome achievable on your passing

Do you have Binding Nominations in place for your superannuation?

Most Australians are unaware that your superannuation does not automatically form part of your Will when you die. So what does this mean?  When you die the Trustee of your super fund will decide on the dependants who will receive your super.  Therefore, your entire super, and often your insurance benefits may be distributed in a way the Trustee sees fit.

You may have chosen to nominate a beneficiary in the past, however if this is not a binding nomination, the Trustee still holds ultimate power and choice of how your superannuation and insurance benefits are distributed.

Should your nomination be binding you overrule the Trustee and maintain the final say about who receives your superannuation and possible insurance proceeds.  To ensure your superannuation is binding and not merely a nomination, you can nominate any of your dependents as defined under the superannuation law.  This may be your current spouse (including your de-facto) or your child of any age (including adopted children), or a personal financially dependant on you at the time of your death (your mother-in-law who is living with you).  Or, you may elect to nominate your estate (your assets in your Will).  Nominating your estate may be the most tax effective method of distributing your assets.

Binding nominations generally expire after three years, so it is vitally important that you update your nomination regularly.  You can revoke or change your nomination at any time by contacting your super fund and creating a new binding nomination.

To establish a Binding Nomination, you will need to complete a specific form and have your signature witnessed in a specific way.  You should have your binding nominations checked by your trusted adviser to cerify that they are in line with current superannuation rules and that your strategy can achieve the optimal financial result for your dependants.  A good think to keep in mind is that superannuation monies left to a non-dependant can be taxed up to 31.5%.

The team at Burcheart is here to help and can support you with your risk mitigation planning.  We encourage you to take the first step and start putting the measures in place that will keep your family’s future certain and give you peace of mind that in the worst case scenario… you are sorted!

[1] NSW Trustee & Guardian, Attorney General & Justice, What is a Wil

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