Tag Archives: Estate Planning

5 common financial mistakes to avoid during a crisis

By Robert Wright /August 07,2020/

The economic impact of the COVID-19 pandemic is playing havoc with finances for many households. In an ideal world, the financial boost should be enough and assumes that everyone was financially prepared for tough times. But in times of crisis, it can all be a little overwhelming.

Here are 5 common financial mistakes to avoid during a crisis and help you get to the other side with minimal money stress:

1. Not paying attention to the household finances

According to a study by Deloitte Access Economics, a worrying 14 per cent of Aussies struggle to pay their bills (including rent, mortgage, utilities and credit cards). The study found that 26 per cent are spending more than they earn and live from pay cheque to pay cheque. Taking time to pay a little more attention to your household budget will help you stay afloat financially and not fall into unnecessary debt.

Start by listing all discretionary spending and reduce non-essential spending as much as you can. Identify those recurring direct debits to subscription services you no longer use. Perhaps home cooking will do rather than Uber Eats. Schedule a payment plan with essential providers such as utilities and rates. Discuss holiday repayment options with your bank or landlord.

Try using a spreadsheet or budgeting app to make it easier to track your spending during this time. You’ll quickly get a true picture of your financial health.

2. Not building up emergency funds

The Deloitte study also found 13.4 million Aussies don’t have emergency savings to fall back on if they are out of a job. While we could not have predicted a pandemic, it certainly has exposed the financial vulnerability of not ‘saving for a rainy day’. A general rule of thumb is keeping aside three to six months of living expenses.

With banks letting borrowers hit pause on their home loan repayments, and as many as 375,000 individuals applying for the repayment relief, saving any excess surplus into an emergency fund to cover delayed repayments will see you in a stronger financial position.

3. Making emotional investment decisions

Share market volatility has seen global markets bounce around, resulting in lower investor confidence. With markets falling as much as 37 per cent, you may be thinking of abandoning your long-term investment strategy and cashing in your portfolio. However, share markets have proven that a recovery follows a crisis. The Global Financial Crisis of 2007 and the Black Monday Crash of 1987 are good examples. So, it makes sense to stay the course with a quality investment strategy whilst reviewing it regularly in line with financial goals.

4. Assuming your estate is in order

Half of Australians do not have a will. Of these, 34 per cent said they ‘haven’t got around to it.’ Without a valid will, your estate affairs end up in chaos. In light of the current pandemic which can have fatal consequences, setting up your estate affairs should be high on your list. A simple will can be drafted up by a lawyer for as little as the cost of smart TV.

5. Not seeking professional advice

In times of financial crisis, it might seem more affordable to take a ‘Do-It-Yourself’ approach to save on costs, rather than seek the advice of a financial advice professional. During COVID-19 crisis, the Australian Government eased the rigid regulatory requirements to allow more access to professional advice. Working alongside a subject matter expert such as a financial planner, may help you achieve a better financial outcome as well as putting your mind at rest about the future.

Source: Money and Life

Who inherits your super?

By visual /May 13,2020/

There are only certain people who can inherit your super when you die. There are also two different types of nominations you can make. Here’s what you need to know before making your super beneficiary nomination.

Super is different from other assets, such as your house, because the trustee of your super fund ultimately decides who gets your super and any associated life insurance, if it’s held within the super fund, when you die.

Super doesn’t automatically go to your estate, so it’s not automatically included in your Will. That’s why you need to tell your super fund who you nominate. And, depending on the type of nomination, they’ll either consider your nomination or be bound to pay it as you’ve nominated.

Who can you nominate?

Super fund trustees can only pay your super to ‘eligible dependants’ or to the ‘legal personal representative’(LPR) of your estate.

Eligible dependants are restricted to these people:

Spouse

A spouse includes a legally married spouse or a de facto spouse, both same-sex and opposite-sex.

A spouse can be a person you’re legally married to but are now estranged or separated from. So, if you haven’t formally ended a marriage, your husband or wife is still considered your dependant under super law. And, while you can’t be legally married to two people, it’s still possible to have two spouses – a legally married spouse and a de facto spouse.

Child

A child includes an adopted child or a stepchild. Even though a stepchild is included in the definition of a child, if you end the relationship with the natural parent or the natural parent dies, the child is no longer considered your stepchild. However, they may still be considered a financial dependant or in an interdependency relationship with you and could therefore continue to be a beneficiary of your super.

Financial dependant

Generally, a person who is fully or partially financially dependant on you can be nominated as your super beneficiary. This is as long as the level of support you provide them is ‘necessary and relied upon’, so that if they didn’t receive it, they would be severely disadvantaged rather than merely being unable to afford a higher standard of living.

Interdependency relationship

Two people have an interdependency relationship if they live together and have a close personal relationship. One, or each of them, must also provide a level of financial support to the other and at least one or each of them needs to provide domestic and personal care to the other.

Two people may still have an interdependency relationship if they do not live together but have a close personal relationship. For example, if they’re separated due to disability or illness or due to a temporary absence, such as overseas employment.

Who is not a dependant?

A person is not a dependant if they are your parents, siblings or other friends and relatives who don’t live with you and who are not financially dependent on you or in an interdependency relationship with you. If you do not have a dependant you should elect for your super to be paid to your legal personal representative and prepare a Will which outlines your wishes.

Legal personal representative

A legal personal representative (LPR) is the person responsible for ensuring that various tasks are carried out on your behalf when you die. You can nominate an LPR by naming the person as the executor of your Will. Your Will should outline the proportions and the people you wish your estate, including your super, to go to.

Types of nominations

There are two types of nominations you can make once you decide which super dependants, or LPR, you wish to nominate:

  1. Non-binding death benefit nomination

A non-binding death nomination is an expression of your wishes and the trustee will consider who you’ve nominated but they’ll ultimately make the final decision about who receives your super and any associated life insurance.

  1. Binding death benefit nomination

A binding nomination means the trustee is bound by your nomination. They must pay your super benefits to your nominated dependants in the proportions you set out or pay it to your estate if you nominated an LPR. Binding nominations need to be signed and witnessed by two witnesses who are not named as beneficiaries. Also, they expire after three years unless you re-affirm your nomination.

If you’re not sure of the best way to nominate your super beneficiaries, or to discuss your situation in further detail, please contact us.

Source: IOOF

Downsizer contributions: what are the rules?

By visual /May 13,2020/

In the first year since older Australians have been allowed to make downsizer contributions, 4,246 people have contributed a total of $1 billion in downsizer contributions to their super funds (1 July 2018 – 1 July 2019).

This not only allows retired people to have access to more money to fund their retirement, it’s also likely to have freed up new property for sale for first home buyers and young investors.

Although this is good news for people who have benefited from this scheme, some people have reportedly missed out because they didn’t understand the eligibility criteria.

Here’s a summary of the rules around making downsizer contributions:

  • You need to be 65 or over at the time of making the contribution.
  • You or your spouse need to have owned your home for more than 10 years prior to the sale.
  • You don’t need to be working.
  • Both you and your spouse can make a concessional downsizer contribution of $300,000 each if you both lived in the property at some point in time and the proceeds of the sale are exempt or partially exempt from capital gains tax (CGT) under the main residence exemption or because you bought the property before 20 September 1985. If only you lived in the property at some point in time then only you, not your spouse, can make a downsizer contribution (as long as you meet all other conditions).An investment property that you haven’t lived in is not eligible.
  • Houseboats, caravans or mobile homes are not eligible.
  • The total super balance test of $1.6 million and the $100,000 non-concessional contributions cap restrictions don’t apply.
  • You need to make all downsizer contributions within 90 days of receiving the proceeds of sale, usually the date of settlement.
  • You can only downsize once.
  • You don’t need to buy another property to use the scheme.

If you sell your home and put some of the proceeds into super, you need to consider how this will affect your Centrelink benefits. Your super balance is counted towards the means test so you could potentially lose some, or all, of your Centrelink benefit if your super balance goes up.

Source: IOOF

What happens to my super when I die?

By Robert Wright /July 24,2019/

You may not be aware that how and in what proportions your super is distributed can’t be covered in your will unless you’ve made the necessary arrangements with your super fund beforehand.

Why can’t super be covered in my will?

Your super can’t typically be covered by your will because your will only covers assets you own personally (things like, your house, car, investments, savings and personal items).

Your super on the other hand is held for you in a trust by your super fund trustee and governed by superannuation law, which is why different rules apply and why your super fund must be kept up to date with your instructions.

Who can I leave my super money to?

In the event of your death, your super fund must pay a death benefit to one or more people in your life who are eligible.

Your eligible super beneficiaries might include:

  • your spouse (including de facto and same sex partners), but not former spouses
  • your children regardless of age
  • anybody financially dependent on you when you die
  • your estate or legal personal representative.

One reason you might nominate your estate or legal personal representative is you can then specify in your will how and to who you want to distribute your super money to, which can include eligible beneficiaries (mentioned above), as well as other people in your life.

It’s important however that you ensure the information stated in your will is up to date, so your legal personal representative pays out your super money as per your instructions.

How do I nominate my beneficiaries?

When it comes to specifying your beneficiaries, most super funds will give you several options.

These options are important to understand, particularly given that the type of nomination you choose could give you greater control over how your super benefits are distributed.

Binding nomination

If you make a binding death benefit nomination that satisfies all legal requirements, the trustee of the super fund must pay your super to the beneficiaries you have nominated, and in the proportions specified.

You should also know that there are lapsing and non-lapsing binding nominations. Lapsing nominations typically expire every three years unless you renew them, while non-lapsing nominations may never expire.

Non-binding nomination

If you make a non-binding nomination, the trustee of the fund will have the final say over which beneficiaries receive your super and in what proportions, but your nominations will be considered.

No nomination

Depending on the product, if you don’t make a nomination the trustee will pay your death benefit to your estate, or use its discretion to determine which eligible beneficiaries the money should go to.

Super in pension phase already?

If your super is already in pension phase, then all of the above plus additional options may be available and need to be considered.

Source: AMP, 29 April 2019