The Importance of Estate Planning & Insurance Planning

No one likes to think about their own incapacity or mortality but estate planning and insurance-planning is not about you.  They go hand-in-hand and both are gifts you give to your family or those close to you.  In the event of something going seriously wrong, it’s about considering the family around you; those who must care for you in sickness and those you will most mourn your passing.

In the event of your death, whether premature or not, it’s about leaving clear instructions for those you leave behind.  In practical terms, it is also more than that.  It also means leaving this world with a clean financial slate.  That is, debt-free.

Consider the following:

  1. What would your family do if you become seriously ill, suffer a traumatic health event, become unconscious, paralysed or lose mental capacity in an accident or even dementia?  As a result of this, you lack the mental capacity to sign documents or make your own financial decisions.  Your family makes enquiries only to find that no one can sign or transact on your behalf without your formal written authority (which you now can’t provide).  Your serious incapacity now means that you are a financial passenger who no longer earns income and requires ongoing medical, nursing and rehabilitative care.  Most ongoing care is out of hospital and not covered by private hospital insurance.  Without income, most people can’t live off their savings for more than a month.

Checklist 1:

  • If you have a Will, it won’t help in this case because you are still alive. So you need more than just a will
  • Consider an Enduring Power of attorney so someone you trust can sign on your behalf
  • To avoid being a financial burden on someone else, consider creating the money you need at the time you need it by arranging income protection and trauma insurance to cover normal living expenses plus the unplanned medical costs and ongoing care expenses 

 

Now consider this:

  1. What would happen to your family if you die prematurely from e.g. sudden cardiac arrest, heart disease, one of many forms of cancer, or perhaps in an accident? Let’s assume that the only insurance you have is the small amount of Death Cover in your super.  Your family still has the mortgage or rent to pay but no longer have your regular pay coming in.  You don’t have a Will and you haven’t nominated anyone to receive your superannuation.

Checklist 2:

  • Consider having a Will prepared by a solicitor. Without a Will in Queensland, the Public Trustee will distribute the assets you own according to a formula, regardless of what you would have wanted.  
  • Consider nominating a valid beneficiary to receive your superannuation.  All insurance in super is paid by the insurer to its legal owner, which is the trustee of your super fund.  From there it is subject to the laws of superannuation.  Without a binding instruction, the trustee of your super fund has total discretion to decide who receives your money. 
  • Consider creating the money you need at the time you need it by arranging sufficient life insurance to pay out debts and whatever additional amount you would like your family to have.

Note that your Will only covers estate assets.  That includes only those assets and property and assorted stuff personally owned (i.e. in your name only).  Jointly owned property (e.g. your home) is excluded and your Will doesn’t deal with your superannuation or life insurance unless you deliberately direct the money to your estate by making written nominations of beneficiary.

So you can see that everything above applies to individuals.  If you have a business or assets owned by a company or trust, there is more planning to do.

Estate planning, when done hand in hand with insurance planning, gives you the power to create certainty when things go wrong; and also the ability to create the money that is needed at the time it is needed.  The longer you leave it to act, the more likely you are to find out the hard way just how important this all was.

This is general advice only. The purpose of this article is to provide you with information and education in a complex area. As a licensed financial adviser, I strongly urge you to seek personal advice based on your individual needs and circumstances, before making any decision about estate planning, superannuation and insurance.