This episode of Investing Compass went into three tasks that you could tackle to make your family’s life easier.

Many of our financial goals revolve around creating better lives for ourselves and for our families.

From saving for your children’s education to securing your retirement and estate planning, the decisions you make today will shape your financial future, as well as your family’s.

Many of our financial goals revolve around creating better lives for ourselves and for our families.

From saving for your children’s education to securing your retirement and estate planning, the decisions you make today will shape your financial future, as well as your family’s.

Thinking ahead

Are private school fees worth it? Shani looks at what you’re giving up by sending your kids to private school.

You can find the podcast episode for the article below.

Want to set up your child for life? Joseph explores how to (almost) set up a child for life with $46 per week.

Are education bonds a tax effective way to save for your children and grandchildren’s education? Shani takes a look at how it compares to other investment structures.

Balancing potential parenthood and finances? Sim explores whether Millennials afford to have children.

Estate planning

Thinking about estate planning? Noel Whittaker gives some great advice in Estate planning made Simple Part I, Part II and his interview with James Gruber.

Having tough conversations? Get some tips on how to talk to your family about your will.

Avoid common mistakes: Avoiding wealth transfer pitfalls and how to create an airtight will when more than 50% of wills are contested.

What are the documents you need to protect yourself and your family? These are the essential documents to give you peace of mind.

Inheritance

How to incorporate an expected inheritance into your financial plan. The intergenerational wealth transfer is a hot topic. How should you incorporate any inheritances into your financial plan?

You can find the podcast episode for this article below.

Your inheritance will likely be a house. What should you do with it? Shani looks at the implications of inheriting or bequeathing property. Shani also takes a look at your options when you inherit shares.

Should you give your children their inheritance before you die? The issue is likely to be aired more often as Baby Boomers in Australia get older, die richer and leave behind larger bequests.

Invest or pay off your mortgage? This Investing Compass episode explores what you should do when you receive an inheritance.

You can find the transcript for the episode below:

Mark Lamonica: Shani, we’ve been doing this podcast for five years and there’s never been an injury until today. You have hurt your neck.

Jayamanne: You always have injuries. You come in here limping. You hurt your back all the time.

Lamonica: You hurt your neck while we were sitting in the podcast chair.

Jayamanne: I can’t really move it too much. It’s not going to be a very animated podcast today.

Lamonica: We’ll just get into it then. Today we have an episode about making your and your family’s life easier. And this, of course, is the purpose of investing. We invest not just to watch our balance grow, but to achieve financial goals and increase our quality of life.

Jayamanne: But part of this is protecting the investments that you’ve grown, either for yourself or for your family when you’re gone. We’ve come up with a quick hit list of things that you can knock over to give yourself peace of mind so you’re more protected.

Lamonica: And you can do it quickly. You can probably get most of this accomplished just over a weekend. And we do want to acknowledge before we get into this that thinking about what happens when you die is uncomfortable. And to top this off, the last thing we want to do is all the admin around that. But if you do take these small practical steps, it will be worth it because it will spare you and your family stress and uncertainty if something happens.

Jayamanne: That’s right.The last thing we want to do is cause confusion or conflict. And Morningstar Research shows that in our later years, one of our top financial goals is to leave behind an inheritance. Many investors spend decades building up their assets to provide a better life for themselves. And once that’s taken care of, they shift their focus to their loved ones.

Lamonica: And Shani and I are both available if anyone wants to put us in your will. So, just remember that. Let’s talk about some of the structure we want to put in place should the expected or unexpected happen.

Jayamanne: The first is to set an appointment with an estate planning lawyer to get your will power of attorney and enduring power of attorney established or updated. And we’ve done a whole episode on these documents, but they are documents that protect your assets and yourself after your death.

Lamonica: Go back and listen to that episode, but we’ll do a quick rundown of the document. Let’s start with a will. Not Will, our amazing producer on Investing Compass, but the will that is a legal document that sets out your intentions for your assets upon your death. Without one, the decisions may be made through the legal system, which may differ greatly to your wishes. And that can cause significant delays to your family being able to access any of your assets, which can cause stress and financial anxiety when you pass. And Shani, you’ve actually had some experience with contests over will and it did get pretty bad.

Jayamanne: I mean, I was part of a mediation. I was only observing, but it was pretty brutal. Over half of wills do get contested in Australia. You’re more likely than not to end up in this situation. You pay both sets of lawyers and you end up causing emotional damage and distance between family members. It’s important to ensure that your will is updated and as legally watertight as possible. And I’ve talked to an estate planning lawyer on the best ways to do this. So, you can find your way to that article through the article linked in the podcast episode.

Lamonica: We’re going to move on to the next document, which is a power of attorney or a POA. And that is a legal document that gives an individual the ability to manage another’s financial matters if they are not able to manage them themselves. So, an example of this would be if you are living overseas and you are unable to deal with bank and financial matters. So, you appoint a sibling to do so on your behalf. Another example would be an older parent is less mobile and their child goes to the bank to conduct their financial matters.

Jayamanne: And the last is an enduring power of attorney. And this allows someone to make financial decisions on your behalf even if you’ve lost capacity. And it’s extremely important that an enduring power of attorney is appointed before a person loses capacity because it can’t be appointed after. You really need to forward plan.

Lamonica: If you do not have these legal documents for protection and something happens, it just becomes more complex for everyone involved. So, for example, if none of the POA documents are drawn up, there’s nobody that can legally make decisions on your behalf if you’re incapacitated. And if you’re in New South Wales, what this means is a family member or support worker will need to make an application to New South Wales Civil and Administrative Tribunal, known as NCAT, to appoint a financial administrator.

Jayamanne: But this forum can also be used if there’s a contest against an individual abusing the power that they get from these legal documents. And these documents are useful during some of the most turbulent and stressful times in your life. It’s likely that the person that’s making decisions on your behalf is a loved one who will also be going through a similarly tough time. These may help to relieve some of the burden and stress.

Lamonica: And I think the first time we did the episode, or the other episode that we talked about this, I was talking about how I was going to appoint you, Shani.

Jayamanne: That’s a lot of power.

Lamonica: It is a lot of power and I’m sure you’ll use it for evil. We will see. And this goes into the next point. Considering the gravity of these documents and the responsibility that they hold, updating them is just as important as creating them. So life changes, relationships change, your family may grow or shrink and your priorities might evolve over the decade. If you’ve already got these documents, you need to incorporate a regular review to make sure that your current wishes are reflected and honored if something happens to you.

Jayamanne: What’s the first step? The first step is to set an appointment with your estate planning lawyer. Even if the process is not completed, put it in your calendar and ensure that you have the steps in place to have it finalized.

Lamonica: We’re going to move on to the second task. The next task is submitting or updating your nomination of beneficiary form to your superfund. For many of us Aussies, and that includes me Shani, super is the largest or second largest financial asset we’ll ever have. But many people don’t realize that your super isn’t immediately included as part of your estate. And if you haven’t made your wishes clear to your superfund, the trustee of your superfund will decide where it goes.

Jayamanne: What you can do is submit a nomination of beneficiary form. Submitting this form with a legally valid nomination tells your superfund where your funds and any insurances attached should be distributed. And there are two main types of nominations for super, binding and non-binding. Mark, do you want to tell us the difference?

Lamonica: I do. Binding nominations are a legally valid nomination to a valid dependent. Binding nominations can be lapsing or non-lapsing. Non-lapsing is valid until death, but lapsing is the most common. It means that it expires every three years. And this is done because there’s room for circumstances to change. For example, you might make a nomination for a spouse. 20 years later, you might have children, you might be remarried, you might be divorced. There’s a range of possibilities over the decades that you have super. A lapsing nomination expires to account for those changes. Once it does lapse, if it’s not renewed, it turns into a non-binding nomination. And this is a strong suggestion as to where a death benefit should be paid. The trustees of the superfund will take current circumstances into account.

Jayamanne: And then there’s reversionary beneficiaries. Distribution of estates can be messy and they can be complicated and a drawn out affair. And so reversionary beneficiaries are important if there’s a loved one that is financially dependent or interdependent on the income stream coming from a pension account. Upon death, a reversionary beneficiary will receive the income stream payments without delay. This is instead of the decision going to the super trustees and requiring more paperwork and time.

Lamonica: And like with the rest of your estate, understand how the assets in your superfund fit into your financial picture. If you have someone who is reliant on an income stream, you want it to be distributed in a different way to your will. And just let the nomination reflect your wishes. Your family could face delays or an outcome that varies from what you actually want.

Jayamanne: And so what’s the next step here? It’s download the form from your superfund website and fill it out following the instructions exactly. And ensure it is legally binding by understanding who is a valid nomination. You are able to find this through the ATA website.

Lamonica: And the last one is probably the hardest, well for most people, and that is to put together a time to have a conversation about your intentions and decisions. Legal documents are there to protect you and your assets, but as Shani said and experienced, over 50% of wills are contested in Australia.

Jayamanne: And often families are left making assumptions about what their loved ones would have wanted. And this really leaves a lot of room for resentment and to irreparably harm relationships.

Lamonica: Having conversation to make your intentions known while you’re still around can leave space for questions or concerns that you haven’t considered. And although the final decision is yours, you’re able to explain why you have made the decisions that you have.

Jayamanne: And this conversation doesn’t need to be a daunting or dramatic experience. Having the conversations with all of your family at once can help with ensuring that the same message is delivered with no contest after the fact. And if this is not something that you want to do, start with one person and then build to a larger group from there. And I can understand that this might be a conversation you want to avoid, but going through the mediation process, I can definitely say that this is an easier option and will leave more relationships intact.

Lamonica: And what’s the next step? First, you’ve got to make sure you’ve got a comprehensive estate plan set up that reflects your wishes. Then set up a time to have a conversation with your family. And in Shani’s article, she’s linked to an article from our colleague, Danielle Labotka, who is part of the behavioral research team at Morningstar. And she runs through exactly how to approach that conversation.

Jayamanne: There it is, three quick tips to protect yourself, your assets and make your family’s life easier. Set up or update your will, power of attorney and enduring power of attorney. Ensure your nomination of beneficiaries that’s updated with your super, one of your largest assets. And lastly, have an open and honest conversation with your family about your intentions.

Lamonica: And I’m going to read that Danielle article so that we can have a good conversation about this. We know that this isn’t the most pleasant process because none of us like ruminating on death and unexpected illness. But a large part of this is helping out your loved ones. So small practical steps will remove a burden from your family at an extremely difficult time in their lives. Thank you all very much for listening. Have any questions or comments? My email is in the show notes.

Invest Your Way

A message from Mark and Shani

For the past five years, we’ve released a weekly podcast and written on morningstar.com.au to arm you with the tools to invest successfully. We’ve always strived to provide independent, thoughtful analysis, backed by the work of hundreds of researchers and professionals at Morningstar.

We’ve shared our journeys with you, and you’ve shared back. We’ve listened to what you’re after and created a companion for your investing journey – Invest Your Way. Invest Your Way is a book that focuses on the investor, instead of the investments. It is a guide to successful investing, with actionable insights and practical applications.

If anyone would like to support this project you can buy the book now. Thanks in advance!

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