Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 223

Check pension outcomes when making a will

People's attitudes to money are amazing. They'll spend most of their lives working for it, worrying about it and fighting over it, yet many won't give more than a passing thought to what will happen to it when they die.

Nearly 50% of people die without a will, and most of the remainder seem content to use a DIY job from the local stationery shop, or grab the first free offer they can find. 

A good will reduces costs 

This is an unfortunate attitude because the cost of having no will, or a badly drawn-up will, is far higher than the legal fees to get it right in the first place. One of the most common mistakes is for a couple receiving Centrelink benefits to leave all their assets to the survivor in the event of the death of one of them. The problem arises because the Centrelink income and assets tests are different for couples and singles.? 

Let’s think about a couple in their early 80s who own their home, as well as a car and personal effects worth $30,000. They also have superannuation, bank accounts and other investments totalling $560,000. As a couple, they are entitled to an aged pension of around $18,500 a year. 

If one of them dies, and all assets are left to the survivor, that person will be over the limit for the single pensioner assets test and will lose their pension entirely. That’s a double whammy – losing your partner and your pension simultaneously. If the will had left part of the financial assets to their children, the survivor would have retained a part-pension. 

Preparation goes a long way? 

As always, the solution to the problem is to prepare for it. Long before death is imminent it is wise to involve the entire family to reach agreement on what assets will be left to individual family members if there are any, or other people or entities if there is no family. In the example above, the couple were both elderly and it would be reasonable to assume that their needs for a large amount of investment capital would be less than they once were. 

They certainly can't make gifts now because they would be hit by the Centrelink deprivation rules, but they could frame their wills so that some assets could be left directly to other beneficiaries when one of the partners died. 

Suppose this couple had three children, and changed their wills so that $100,000 of investments went to each child on the death of either parent. The outcome changes completely. The assessable assets for the survivor would reduce to $290,000 and instead of losing the entire pension, they would receive a small increase! The pension would rise to around $20,300 a year. The survivor would have the pleasure of watching the children benefit from the legacy, and would retain an unencumbered property, $260,000 of investments and an increase in pension. 

Just reflect on that for a moment. If the survivor lives for 10 more years, the value of the pension over that time would be close to a quarter of a million dollars, while the peace of mind that would come from retaining the pension and watching the children enjoy the legacy would be priceless. All for a cost of a few hours and maybe a thousand dollars. 

Almost everybody you know will have some story about hassles caused by a badly-prepared will, or worse still – no will at all. That’s a pity, because it doesn’t take much preparation to stop these types of problems before they arise. Just make sure you involve your solicitor, your financial adviser and your accountant when drawing up or reviewing a will, as each is a specialist in a different but important area. 

 

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. See www.noelwhittaker.com.au. 

RELATED ARTICLES

New role for outcomes test and member goals

Lending policies can spoil good SMSF strategies

Behavioural reasons why we ignore life annuities

banner

Most viewed in recent weeks

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Latest Updates

SMSF strategies

30 years on, five charts show SMSF progress

On 1 July 1992, the Superannuation Guarantee created mandatory 3% contributions into super for employees. SMSFs were an after-thought but they are now the second-largest segment. How have they changed?

Investment strategies

Anton in 2006 v 2022, it's deja vu (all over again)

What was bothering markets in 2006? Try the end of cheap money, bond yields rising, high energy prices and record high commodity prices feeding inflation. Who says these are 'unprecedented' times? It's 2006 v 2022.

Taxation

Tips and traps: a final check for your tax return this year

The end of the 2022 financial year is fast approaching and there are choices available to ensure you pay the right amount of tax. Watch for some pandemic-related changes worth understanding.

Financial planning

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Infrastructure

Listed infrastructure: finding a port in a storm of rising prices

Given the current environment it’s easy to wonder if there are any safe ports in the investment storm. Investments in infrastructure assets show their worth in such times.

Financial planning

Power of attorney: six things you need to know

Whether you are appointing an attorney or have been appointed as an attorney, the full extent of this legal framework should be understood as more people will need to act in this capacity in future.

Interest rates

Rising interest rates and the impact on banks

One of the major questions confronting investors is the portfolio weighting towards Australian banks in an environment of rising rates. Do the recent price falls represent value or are too many bad debts coming?

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.