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

Who's next? Discounts on LICs force managers to pivot

The boards and managers of six high-profile LICs, frustrated by their shares trading at large discounts to asset value, have embarked on radical strategies to fix the problems. Will they work?

Four simple things to do right now

Markets have recovered in the last six months but most investors remain nervous about the economic outlook. Morningstar analysts provide four quick tips on how to navigate this uncertainty.

Welcome to Firstlinks Edition 373

It was a milestone for strange times last week when the company with the longest record in the Dow Jones Industrial Average (DJIA) index, ExxonMobil, once the largest company in the world, was replaced by a software company, Salesforce. Only one company in the original DJIA exists today. As businesses are disrupted, how many of the current DJIA companies will disappear in the next decade or two?

  • 2 September 2020

Welcome to Firstlinks Edition 374

Suddenly, it's the middle of September and we don't hear much about 'snap back' anymore. Now we have 'wind backs' and 'road maps'. Six months ago, I was flying back from Antarctica after two weeks aboard the ill-fated Greg Mortimer cruise ship, and then the world changed. So it's time to take your temperature again. Our survey checks your reaction to recent policies and your COVID-19 responses.

  • 9 September 2020

Reporting season winners and losers in listed property trusts

Many property trust results are better than expected, with the A-REIT sector on a dividend yield of 4.8%. But there's a wide variation by sector and the ability of tenants to pay the rent.

Every SMSF trustee should have an Enduring Power of Attorney

COVID-19 and the events of 2020 show why, more than ever, SMSF trustees need to prepare for the ‘unexpected’ by having an Enduring Power of Attorney in place. A Power of Attorney is not enough.

Latest Updates

Exchange traded products

Who's next? Discounts on LICs force managers to pivot

The boards and managers of six high-profile LICs, frustrated by their shares trading at large discounts to asset value, have embarked on radical strategies to fix the problems. Will they work?

Shares

Have stock markets become a giant Ponzi scheme?

A global financial casino has been created where investors ignore realistic valuations in the low growth, high-risk environment. At some point, analysis of fundamental value will be rewarded.

Gold

Interview Series: Why it’s gold’s time to shine

With gold now on the radar of individual investors, SMSFs and institutions, here's what you need to know about the choices between gold bars, gold ETFs and even gold miners, with Jordan Eliseo. 

SMSF strategies

SMSFs during COVID-19 and your 14-point checklist

SMSFs come with an administration burden underestimated by many. For example, did you know trustees need to document a member’s decision to take the reduced pension minimum under the new COVID rules?

Retirement

Funding retirement through a stock market crash

On the surface, a diversified fund looks the same as an SMSF with the same asset allocations. But to fund retirement, a member must sell units in the fund, whereas the cash balance is used in an SMSF.

Australia’s debt and interest burden: can we afford it?

Australia has an ageing population and rising welfare and health costs, but it is still the best placed among its ‘developed’ country peers. Here's why the expected levels of debt are manageable.

Weekly Editorial

Welcome to Firstlinks Edition 375

There are many ways to value a company, but the most popular is to estimate the future cash flows and discount them to a present value using a chosen interest rate. Does it follow that when interest rates fall, companies become more valuable? Perhaps, but only if the cash flows remain unchanged, and in a recession, future earnings are more difficult to sustain. What do Buffett and Douglass and 150 years of data say?

  • 16 September 2020
  • 5

Sponsors

Alliances

© 2020 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 class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. 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.