How to leave a financial legacy

The thought of leaving something behind for loved ones or the next generation can be a comforting one. 

In our New Zealand Seniors Legacy Report, we found that nearly half of us (46%) have spent considerable time thinking about the legacy we hope to leave behind. On top of the list, the vast majority (80%) said they wanted to leave valuable assets for loved ones such as personal property, real estate, and money.

There are of course some ins and outs to be conscious of when putting these plans together, so we enlisted the help of Director and Notary Public Vicki Ammundsen. As a trust and estate practitioner, her focus is on providing practical and reliable legal advice across New Zealand. You will find her thoughtful, expert advice and comments throughout this article. 

What to be aware of when creating a financial legacy

Before you get started, there are a few basics you’ll need to consider when planning your legacy and determining how to gift your inheritance. 

“When making a will it is essential that the will-maker appreciates the obligations to provide for close family members as set out in the Family Protection Act 1955; the need to honour any promises made that are subject to the Law Reform (Testamentary Promises) Act 1949; the implications of the Property (Relationships) Act 1976 (and any agreements to contract out of this act) as well as any impediments the will-maker might confront due to being domiciled or otherwise connected to a jurisdiction that restricts their right to decide how to distribute their possessions after they pass away,” explains Ammundsen. 

In other words, when you do create a will it’s important to understand that there are specific responsibilities you need to uphold. It’s important to keep any important promises you’ve made in the will, which might also be legally binding.

Changes to estate planning in the last 10 years (or so)

If you’ve already created a will, or completed some research, it may pay to take another look at the laws around inheritances. According to Ammundsen, there have been a few important changes. 

Most notably, perhaps, is the abolition of gift duty in 2011. 

“The abolition of gift duty has meant that many will-makers who have also settled trusts may have overlooked unforgiven debts that inflate their estate.”

Before, there was a per annum limit of $27,000 that could be given as a gift without attracting a gift duty. Since then, there is no limit. 

“The increasing willingness of the court to validate wills mitigates against a purposeful approach to testamentary dispositions,” added Ammundsen. 

Put simply, potentially getting rid of gift taxes has caused some people who create wills also set up trusts to forget about debts. This can potentially make their overall estate seem larger than what it is – which isn’t exactly accurate.

The biggest challenges to be aware of when estate planning  

Ammundsen highlights three challenges that she thinks most often face New Zealanders when planning a will. 

Tough conversations

“The main barriers, in my opinion, are discomfort with considering mortality and communicating wishes that might be outside societal norms,” she explains. 

Conversations about death and dying are never easy, which naturally makes it a real barrier when trying to carefully consider and plan a will. 

Ammundsen also had a few simple tips to get started on these conversations.

“Choose a time when you are free from distraction. Have a clear agenda. Start little. It might be as simple as ‘When I die, I want to be cremated and my ashes sprinkled … is there anything you would like to know about what else I want to do?’,” she suggests. 

Misunderstandings about what the role of wills and legal requirements

“Another significant barrier is the misguided belief that “the law” will achieve the desired outcome on an intestacy,” says Ammundsen. 

In other words, some people believe that the laws that take effect if you pass away without making plans will essentially be what you would want anyway. That’s not always the case, so estate planning is the only real way to ensure your wishes are followed. 

Cost 

Another challenge can be the cost – or even simply the perceived cost – of estate planning. 

Leaving behind more than just financial assets in a will 

In our Legacy Report, we addressed the idea of leaving things behind that were more than just financial assets. For example, you might have intellectual property, a digital footprint, or personal wishes that you want to pass on. 

We found that 81% of survey respondents said they wanted to pass on kindness and empathy as their legacy, followed closely by respect for others at 80%. 

Ammundsen also highlighted the shift towards leaving behind digital assets for loved ones. 

“The most common development in this space is the appointment of digital executors and arrangements to ensure the safe transfer of password and log-in details,” she said. 

Transferring wealth before passing away 

Perhaps you would rather see your wealth enjoyed by your loved ones before you pass away. Or perhaps you are so concerned about the cost of living and financial challenges of today that you believe it’s best to transfer that wealth sooner rather than later. 

Ammundsen stated that she is seeing a “significant increase in parents wanting to transfer wealth before death,” especially those who were in a good financial position in retirement. 

However, she did also issue a warning for parents considering this route. 

“This can leave some people significantly financially disadvantaged in later years, especially if they require long term care, but do not qualify for state assistance due to having voluntarily disposed of assets during their lifetime,” she explained.

Vicki Ammundsen’s top five tips for estate planning 

• Know your legal obligations. Be real about your dependants and wider family.
• Think about what your beneficiaries will hear as well as what you are saying. 
• Choose your executor(s) wisely – you are entrusting this person or these people with the balance of your life.
• Review your will – things change, people change. 
• Get competent legal advice. This is not a place to scrimp.

Funeral insurance as a legacy tool  

Determining your beneficiaries and deciding what to pass on to each beneficiary is a big task, but one that can be completed with professional advice from someone like Vicki Ammundsen. 

Another aspect to consider when estate planning is tidying up your affairs and paying for your funeral. Funeral insurance could be an option for helping to cover outstanding bills and funeral costs, which can help to ensure that your estate goes to your beneficiaries, rather than paying for those items. Find out more by requesting a quote today.

Disclaimer: This article is an opinion only, provided for general information purposes and shouldn’t be considered or relied upon as professional or personal advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.

15 Feb 2024