That old cliché about the two certainties in life, death and taxes, becomes downright painful when they both hit you at the same time. But you can avoid this awful double whammy by making estate planning part of your financial roadmap.
Planning for the death of your partner, and your own, is a morbid reality. After someone dies is not the ideal time to be trying to correct poor financial planning – or worse – realising there’s no plan at all. Thinking about it might be unpleasant, but the heartache of having to pick up the financial pieces after a loved one dies is much worse.
There are a few key things you and your partner can put in place to set yourselves up properly should the worst happen.
Get intimate with your finances
Everyone’s situation is different but, in my experience, women often leave financial decisions to their husbands. Such women are unaware of their financial situation and how to move forward in the event of their husband’s death.
I’ve worked on several cases where a client has been surprised by the financial realities following their partner’s death. It can be so overwhelming and emotional that it’s hard to make decisions, and delays can be costly.
If you’re unsure of where you would stand financially in the event of your partner’s death, sit down as a couple and talk it through. It’s not an easy topic, but doing this will help you identify anything that needs to be addressed to protect your financial wellbeing.
Estate planning
Many people die intestate, which means without a will. And many others die with an outdated will. This can make things very tricky for the estate and any potential beneficiaries.
The benefits of planning go way beyond convenience for the loved ones left behind. An estate can be set up in some very tax effective ways, including establishing a testamentary trust to help minimise tax paid on the total amount. I’ve had clients that have lost upwards of $40,000 to tax that could have been theirs with better estate planning.
Superannuation beneficiaries
Distributing superannuation after a death is not always cut and dry. A spouse is not an automatic beneficiary. Without a nominated beneficiary, the super fund can choose to distribute the funds between family members and dependents. Or if the information is out of date, the beneficiary could end up being a former spouse and you may have to make a claim to get the funds. It sounds far-fetched, but it happens more than you’d think.
To avoid these headaches, make sure you nominate a beneficiary for your super and keep it up to date.
Paying the bills
One of the harshest realities for those impacted by a partner’s death is that the bills just keep coming in, despite the fact you're grieving. Add to that the pressure of now being on one income, or finding out some things you didn’t know about your financial situation, and things start to get really tough.
Even if you are the sole beneficiary of your partner’s estate, you won’t have immediate access to the funds. So having an emergency fund is an absolute must. A bit of cash stowed away will give you some breathing space to sort things out.
Debt
Inheritance is usually talked about in the context of inheriting money and assets. But unfortunately, debt can also be inherited. Mortgage debt is the most common.
If your partner dies, the money in their estate will used to pay any outstanding debts. If a debt is held in both of your names and your partner’s estate isn’t enough to cover it, you may be liable. To avoid this difficult situation, get a good understanding of the debts both you and your partner have, and what liabilities might exist if one of you dies. Once you know where you stand, you can seek advice on how to avoid any potentially disastrous consequences.
It’s a bleak subject, but avoiding estate planning could lead to something much bleaker. Have the conversations now so you aren’t surprised later, and don’t underestimate the value of a skilled financial advisor, accountant and lawyer. If the unthinkable happens, you’ll be glad you had a plan.
Helen Baker is a licenced Australian financial adviser and author of two books: On Your Own Two Feet – Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce – Your Survive and Thrive Financial Guide. Note this is general advice only and you should seek advice specific to your circumstances.