Last week I had the privilege of being the keynote speaker at morning teas arranged by HBF, the leading private health insurance provider in WA, for their long-term members. Long-term members are people who have been with HBF for more than 50 years. The fact that there were more than 1500 people at each event is clear evidence of the fact that people are living longer than ever before. And of course, it puts pressure on private health insurers, as the medical needs of these members grow. For example, the number of knee replacements covered by the fund has risen from nine per 10,000 members in the year 2000, to 29 per 10,000 members today. As each one costs around $21,000, just one uses up about four years of premiums for a couple.
I did point out to the audience that they should not worry too much about their finances. I doubt any of them are going to die broke - which means any money they spend now is effectively being paid for by the kids, as a reduction in their inheritance. What they do need to think about now is having Enduring Powers of Attorney drawn up so that their affairs can be handled if they are absent or incapacitated. Estate planning should also be a focus. This is an area that tends to fall into the "when I get time" category. But it's too important to take for granted.
Many couples have wills that leave all their assets to each other, but this can cause serious problems if they are receiving the age pension when one dies. Think about a couple with assets of $700,000 who are receiving a pension of $245 a fortnight each, or $12,740 a year. If one of them died suddenly, the surviving partner would be pushed over the assets test cut-off point for a single, which is $574,500. They would lose the pension, health card and their partner all in one go. This could be avoided, if appropriate to their situation, by drafting their wills so that sufficient monies in their estate were left to beneficiaries, such as their children, to keep the residue to the survivor under the single pension cut-off figure.
When you are drafting your will, take particular care with assets such as property and shares, because the introduction of capital gains tax (CGT) in 1985, and the propensity to divorce and re-marry, have added complications. You may own two investment properties of equal value, but if one is pre-CGT, and the other is post-CGT, two beneficiaries may not receive legacies of equal value. Furthermore, if some properties are mortgaged and some are debt free, your will would need to spell out whether the beneficiaries are to take the properties subject to the existing mortgages or whether the loans are to be paid off by the estate before the properties are transferred.
While you are checking that, investigate having a Testamentary Trust included in your will. This can give your trustee control of assets that may otherwise pass directly to your children.
I told the HBF members the story of the couple who died leaving an estate of $4 million to be divided equally between their four children. One was a builder on the verge of bankruptcy, which meant the creditors got the money; the second was a gambler, whose legacy went very quickly; the third was a daughter who was having matrimonial problems - most of her legacy went out the door when the partner left. The remaining child was a medical specialist on a high income - the legacy caused her tax problems.
If the money had been left via testamentary trusts, it would have been safe from the builders' creditors, out of the reach of the gambler and the daughter's husband, and able to be arranged strategically for tax effectiveness.
Think about it. You've spent all your life working for your money. Doesn't it make sense to have some control over where it goes when you are gone? Even Howard Hughes couldn't take it with him.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance.