Last Will and Testament / Estate Planning

Making a will is not as simple as it may seem – there are pitfalls that may not emerge until after you’ve gone. We explain the legal requirements for making a will, and what it’s likely to cost to administer after your death.

Every adult should have a will. That’s because the law is inflexible about what happens to your possessions if you die without one.

Dying without a will

Where there’s no will, your estate will be divided up by the Administration Act:

  • Your spouse or partner gets your personal chattels, the first $155,000 of the estate and one-third of the rest. The other two-thirds goes to your children.
  • If you have no children, your partner gets the personal chattels, the first $155,000 and two-thirds of the rest. Your parents get the other third. Your partner gets the lot if your parents are deceased.
  • If you have children but no partner, the entire estate is left to the children equally.
  • If you have no partner or children, your parents inherit. If your parents are deceased, the entire estate is left to blood relatives or to the Crown if no relatives exist.

Making a will

Less than 5 percent of us die intestate. But we’re often sluggish about putting pen to paper, fearing the lawyer’s bills that may result. Making a will doesn’t cost that much. The expensive bit is the will’s administration after your death: these costs come out of your estate and vary depending on who administers the will.

Making a will doesn't cost that much. The expensive bit is the will's administration after your death.
Making a will doesn’t cost that much. The expensive bit is the will’s administration after your death.

You’re legally entitled to make a will yourself – but just 4 percent do, according to a Public Trust survey. A DIY job may be fine if your assets are modest and your family relationships orderly. But if not, you’ll probably need legal advice.

There are potential downsides to DIY. Experts say home-made wills may create problems if the will-maker’s intentions aren’t clear. Simple errors – for example, the will’s not signed or witnessed properly – can also create grounds for challenge.

The professionals
Most people use a law firm or the Public Trust to draw up their will. This doesn’t mean the will can’t be challenged: disgruntled relatives can still pop out of the woodwork to dispute your last wishes. But using a professional should help to ensure the will is legally valid.

Some law firms may also prepare a will for free if you’re doing other business with them. However, they usually expect to be named as the executor (that’s how they earn an income).

Your executor

You can choose anyone to be your executor. The person doesn’t have to be a lawyer: they can be a family member or friend. It’s common for people to name a friend or relative and a professional as co-executors (they’ll administer the estate together).

There can be advantages in naming a legal expert as an executor because they can deal with legal matters. Probate (authorisation to administer your estate) will usually need to be obtained from the High Court. Your legal expert can also deal with the transfer of any property.

Administration costs

Friend or family
If you name a friend or family member as executor, they may be willing to do the job for free. But there are still likely to be some costs that have to be met, such as High Court fees for applying for probate. You can specify that these costs are to be met by your estate.

Trustee company
If you choose a trustee company as the executor, it will charge for time plus disbursements such as court filing fees, photocopying and postage. By law, trustee companies are limited to charging a maximum fee of 5 percent of the gross value of your estate.

The Public Trust estimates the cost of administering a simple estate (a $300,000 house in joint ownership, personal savings of $50,000 and a life insurance policy of $100,000) to be $3800 plus disbursements. Another $375 would be payable if the surviving partner asked the Trust to transfer the joint home into their name.

Like trustee companies, lawyers’ fees for estate administration can be based on an hourly rate, a task-based rate, a percentage of the gross value of the estate or some combination of these methods.

A 2009 survey by Validatum, a law-firm pricing consultancy, found fees based on time only or a percentage of the gross value of the estate only produced the lowest costs. Validatum’s Richard Burcher says firms that use a pricing method of either time plus a percentage of the estate or task-based pricing plus a percentage of the estate invariably produced a higher fee. Reflecting different pricing methods, Validatum’s survey found costs for administering a complex estate ranged from $4425 to $16,235.

Before you sign up, you’re entitled to ask what the lawyer’s fees are likely to be and the scope of the work that will be undertaken. Lawyers must provide you with information in advance about the basis for their charges.

Legal issues

Writing a will doesn’t give you the freedom to do what you want. Otago University law professor Nicola Peart says if you overstep your legal rights, the will can be challenged. And challenges are fairly common, she says.

Adequate provision
The Family Protection Act says you have a moral duty to provide for close family members in your will. If you don’t, they have a right to contest the will because you haven’t made adequate provision for them. Cutting a close family member from your will is extremely difficult to do, if they choose to challenge it.

The Law Reform (Testamentary) Promises Act says if you’ve promised someone a reward in your will for their services and don’t keep that promise, they can contest the will. Say you hire a caregiver, telling her you can’t afford to pay her much but you’ll see her right in your will. If you don’t keep that promise, she may challenge the will.

Significant others
If you’ve been in a relationship for 3 years or more, the Property (Relationships) Act says your partner is entitled to half your relationship property if you separate or die. This applies to married, civil union and de facto couples, including same-sex couples. You can “contract out” by making an agreement with your partner. If you die, your partner has 6 months to either accept what you leave them in your will or claim their share under the Act.

Report by Jessica Wilson.

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Buying Life Insurance: A Shopping Checklist

When shopping for life insurance, you want to find the right amount of insurance coverage at a reasonable price with a company you can trust. But for many people, getting started is the hardest part. We recommend using a Registered Broker but if you want to take care of it yourself the following Life Insurance Checklist can help.

1. What you would like your policy to achieve?

Ask yourself what it is you want your life insurance to do. For example, do you want to have insurance coverage that will:

  • Pay funeral arrangements?
  • Pay the outstanding balance owing on a mortgage and other debts?
  • Offset the loss of your income? And if so, for how long?
  • Contribute to the future education of your children?
  • A combination of all or part of the above?

Knowing what you would like to accomplish with your life insurance policy and approximately how much you need to achieve these goals will help you determine how much life insurance you should consider purchasing. Online life insurance calculators are available to help you put a dollar value on the amount of coverage you need or your broker can help you work it out.

2.Who would you like to insure under the life insurance policy?

Most insurance companies offer a variety of life insurance products to suit your lifestyle and family needs. You can get an insurance policy on your own life, or you can get one policy for both you, your spouse and can include dependent children. The most common joint life policy provides coverage when the first partner dies, leaving the life insurance benefit to the surviving spouse.

3. How long will you need life insurance?

Consulting a psychic isn’t necessary, although it does require that you estimate the timing and value of your life insurance needs. For example:

  • When will your mortgage be paid off? The repayment period or balance of your mortgage will often determine how long or much your life insurance policy should be.
  • When will your children be finished school? One day they’ll finish their education and having enough life insurance coverage to pay their educational expenses won’t be necessary.
  • When are you planning to retire? You will have less income to replace at that time.

Knowing how long you’ll need a specific value of life insurance coverage before you begin shopping will ensure you’re comfortable with the life insurance value & product you end up purchasing. Online tools are available to help you figure out which life insurance policy is most recommended for people with similar lifestyles.

So now that you’ve got the how much, who and how long questions answered, you’re ready to shop. Again we recommend using a Registered  Broker however these steps will help should you wish to take care of it yourself.

4. Compare life insurance quotes from multiple companies:

It pays to shop around because life insurance rates and benefits can vary considerably depending on the product you choose, your age, and the amount of coverage you request. This is the easy part, because with the Internet you can compare life insurance quotes easily, online, anytime.

5. Which life insurance rate has been quoted – standard or rated?

There are two basic insurance premium groups you should know about when shopping for life insurance coverage: standard rates and rated ( Insurance cover offered at an increased premium)

Standard life insurance rates are typically offered to very healthy people and means you may pay the standard premium where not so healthy people may be offered rated premiums usually once the results of the medical information and tests are known. e.g It will depend on your blood pressure, cholesterol levels, height, weight, and family health history etc. It would be disappointing to find out you were quoted standard rates at the beginning, only to find out you don’t qualify for them later.
Most online calculators will only quote standard where as a Broker can discuss any medical issues direct with the insurers underwriters and provide a more accurate alternative.

When comparing benefits, make sure you understand exactly what you are covered for and importantly what you are not covered for. Avoid the disappointment of a future claim being declined by completely understanding your insurance coverage before you start. If you’re not sure, ask your broker.

6. Review the life insurance broker’s availability:

If using a Broker, how easily can you get a hold of the broker? What are their hours of operation? Whether it is through their website or telephone, the insurance broker should be easily accessible to you should you ever have questions or need to speak to them about a change in your life insurance needs. Look for toll-free numbers and extended hours of service as guides.

7. Review the medical information required to obtain the policy and the information you provided:

The more medical information you provide at application time the better. Non disclosure of any health issues or pre-existing conditions at application time can lead to your policy being “avoided”, which means it is treated as though it never existed. This usually happens when the Insurance company becomes aware of a non-disclosed condition at claim time. Once you have applied for insurance, request a copy of your application and carefully check your answers making sure nothing is missed! 

8. Consider a life insurer’s financial stability and strength:

A company’s financial stability is something to consider if you are planning on making a long-term purchase like life insurance. There are organizations out there, like A.M. Best, that evaluate insurers and provide a rating on their stability and strength.

10. Ask about renewal options and costs:

Once the initial premium is set, it is usually guaranteed for the 1st year depending on your chosen premium option. E.g. Rate for age premiums will increase each year at renewal time with non inflation adjusted level premiums will increase after your chosen term, e.g. 5, 10 years or longer. While your yearly renewal premiums will be higher on renewal,  it is important to find if out if available and the premium cost if  you choose premiums to remain level for another term, E.g. another 5, 10 years.

11. Confirm the policy can be cancelled without penalty:

Most life insurance policies can be cancelled at any time without penalty. Make sure to check with your broker to see if the life insurance company has any unusual cancellation policies.

12. Consider the alteration options and restrictions for the policy:

As your life changes so do your life insurance needs and you may want the option to alter your coverage some day. Any increases in the future may require medical underwriting again which may be impacted by any recent health issues.
Some insurers have a built in “Life Events Benefit”, this gives you the ability to increase your cover after certain life events without providing any further evidence of your health, E.g marriage, having children, taking out a mortgage. for a full list of events covered please ask us.

Final tip – choose an insurance broker you trust:

While it doesn’t necessarily impact the type of policy you choose to purchase, a rapport with your broker is critical in feeling comfortable with the life insurance policy you buy and the information you’ve received.

Please watch our video on tips on choosing a good Adviser

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