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What you need to know about Estate Planning

We aim to provide you with basic information about Estate Planning so you can have a good conversation with a lawyer or a financial adviser. So read this guide to learn more about what is Estate Planning and a few things to consider.

What is Estate Planning?

Estate planning is the preparation of tasks that serve to manage an individual's asset base in the event of their incapacitation or death. 

The aim of Estate Planning is:

  • To ensure ongoing financial security for you and your spouse during your lifetimes; and
  • To secure a cost effective and seamless transition to your nominated beneficiaries after your death in such a way as to maximise the value of your estate.

The most basic step in estate planning involves writing a will. Other major estate planning tasks include the following:

  • Enduring powers of attorney (EPAS)
  • Funeral costs
  • Life insurance and KiwiSaver
  • Debts, taxes and other costs
1. Wills

Estate planning starts with writing a will. No matter how straightforward your circumstances, having a current will makes sure everyone understands what you’d like done with your estate. Your estate is everything you own and any debts you owe when you die.

If you die without a will your loved ones may face difficulty sorting out your wishes and what happens may not be what you would want or expect. As without a will the law determines how your assets are divided and what happens to the people who depend on you.

You can write your own will using an online platform. However, if your affairs are complicated, such as through business interests or blended family situations, it is even more important to get legal and financial advice.

Remember to keep your will in a safe place, and to tell your executor or someone close to you where it is. If they can’t find it – and they’ll need the original copy, correctly signed and witnessed – your wishes may not be able to be carried out.

2. Enduring powers of attorney (EPAS)

Enduring powers of attorney (EPAs) are legal documents that allow you to appoint someone you trust to make important decisions on your behalf if you can’t make these decisions yourself due to illness or injury. There are two types:

  • Personal care and welfare EPA - You appoint someone to make decisions about your wellbeing, such as where you live and how you will be cared for.
  • Property and finance EPA - You appoint someone or a specialist organisation to take care of your finances and property, such as paying bills and managing assets.
3. Funeral costs

Even the most basic funeral in New Zealand can cost thousands, with the average being $8,000 to $10,000. (Consumer NZ, 2017)

Funeral insurance can help cover these costs, with a simple, lump-sum payout when it’s needed most. This is paid to your beneficiary to be used as they see fit for funeral costs, as well as any other costs that may pop up, such as clearing your credit card debt.

Having funeral insurance that covers your funeral plans means your loved ones will have access to that money as soon as possible after you die, so they can focus on what really matters – and not be distressed by money matters at an already difficult time.

4. Using Life insurance and KiwiSaver

Life insurance serves as a source to pay death taxes and expenses, fund business buy-sell agreements, and fund retirement plans. If sufficient insurance proceeds are available and the policies are properly structured, any income tax on the deemed dispositions of assets following the death of an individual can be paid without resorting to the sale of assets. Proceeds from life insurance that are received by the beneficiaries upon the death of the insured are generally income tax-free.

It’s a different story with KiwiSaver. You can’t nominate a beneficiary for your KiwiSaver account. KiwiSaver is an investment that is in your name alone. It is not a joint asset with any partner you may have, unlike savings you may have in a joint bank account and will be part of your estate when you die. (Kiwi Wealth)

While there are pros and cons to life insurance and KiwiSaver, considering an insurance plan for funeral expenses that pays out quickly when the time comes with help negate some of the cons. This way you can be sure that your loved ones don’t have to worry about funeral related expenses during an already stressful time.

5. Debts, taxes and other costs

As well as distributing your assets, your executor will need to pay off any debts you may have. These are paid first out of your estate before anything is paid to beneficiaries. You can make your executor’s task easier by filing all your financial and tax records with your will or telling them where to find it.

It’s important to understand the tax situation around your assets. Talking to a financial advisor about how New Zealand tax law may impact what is passed on to your beneficiaries is highly recommended.

In New Zealand, there is an income-tax exemption on any insurance claims related to loss of life, or illness. This means life insurance or funeral insurance policies are not taxed – what you are covered for is what you should get.

6. Other things to bear in mind

Property or savings held overseas must be considered too. If you have moved from overseas, check with a New Zealand lawyer to ensure your will is valid.

Every person’s situation is different. Seeking legal and financial help is a great way to ensure your legal matters are up to date and watertight.