Getting estate planning right is a must for retirees, but many still don’t understand the implications of making the wrong choices, or even worse not having a will at all.
The first thing to look out for is that certain assets do not pass to the beneficiary in terms of the will: special rules apply. These include assets held as joint tenants, insurance bonds where there is a nominated beneficiary, and superannuation. When one joint tenant dies the asset passes automatically to the other joint tenant, irrespective of the terms of their will. Similarly, the proceeds of an insurance bond are normally paid to the nominated beneficiary – which makes insurance bonds the perfect investment for someone who does not want their will challenged. As for your superannuation fund, it is the trustee who makes the final decision about where the money goes, unless the deceased has executed a binding death benefit nomination.
The next thing for pensioners to keep in mind is the difference between the asset cut-off point for a single person, and that for a couple. For a single homeowner the cut-off point is $561,250, whereas for a couple it is $844,000. Many pensioner couples make the mistake of leaving all their assets to each other, which can cause a lot of grief when one of them dies, and the surviving single pensioner finds themselves losing their pension because their assets are now over the single cut-off point.
This is particularly relevant if you have investments in Australian shares, because if Labor gets into power and implements their policy of denying a refund of franking credits to non-pensioners, the survivor may well face the triple whammy of losing their partner, their pension and their franking credits.
The situation of a widow or widower losing their pension on the death of their partner is becoming so common that I am now receiving many emails asking if it is possible to refuse a bequest, so as to preserve the status quo.
Unfortunately, it’s not that simple. The good people at Centrelink tell me that a person’s interest in a deceased estate is not assessable by them until it is received, or able to be received. They do accept that it may take up to 12 months for an estate to be finalised, after which the survivor needs to advise Centrelink of the date the interest in the estate was received or able to be received.
If the estate has not been finalised after 12 months, Centrelink would need to consider what has led to the delay. If it can be proved that the delay was outside the control the beneficiary it would still not be assessed at that time.
However, if Centrelink believe that the beneficiary has contributed to the delay, the interest would be regarded as available and therefore assessable.
It is certainly open to any beneficiary to decide that they do not wish to accept a bequest and make appropriate arrangements with the executor of the estate. However, Centrelink would treat the money forgone as a deprived asset, so the surviving spouse would be subject to the deprivation rules for at least five years.
There is an easy way to avoid all this. If it is likely that you will be a recipient of an age pension at some stage, ensure that your will is set up to distribute assets in a way that optimises both tax and Centrelink outcomes.
The easy way to do this is to leave part of your assets to your children, or other deserving beneficiaries. The survivor will have the satisfaction of sharing the joy with the beneficiaries, instead of having to accept all the proceeds and the grief that may go with that. But it’s complex – that’s why a conversation with a good lawyer is essential.
- Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. Email him at firstname.lastname@example.org, Visit his website: www.noelwhittaker.com.au.