Avoiding ten financial traps with seniors’ wills, super, and funerals 💰⚠️
Ageing in Australia poses unique financial challenges, particularly for seniors facing complex decisions regarding aged care, pensions, and asset management. These challenges are often exacerbated by unexpected health crises, highlighting the importance of proactive planning. Experts emphasise the need for older adults and their families to navigate these complexities early, ensuring a more secure financial future.
Rudy Haddad, head of technical advice at Padua Solutions, underscores the significance of pre-planning, noting that while initial plans are crucial, they should be flexible and subject to revision. Additionally, Brendan Ryan, founder of Later Life Advice, highlights the emotional aspects tied to family homes, cautioning against leaving wealth predominantly in real estate.
Understanding these complexities is vital, as seniors face ten key financial traps that can significantly impact their financial well-being, and how avoid money traps with seniors’ wills, super and funerals. From managing family home finances to addressing imbalances in assets, dealing with the death of a partner, and ensuring effective use of superannuation, the financial landscape for seniors requires careful consideration and proactive decision-making. By being aware of these challenges and seeking expert advice, seniors can better prepare themselves and their families for the financial realities of ageing in Australia.
Family Home Finance
Seniors often face decisions regarding their family home, which is typically their most significant asset. Downsizing can impact pension eligibility, as any cash released counts towards asset tests. Emotional attachment to the home can lead to financial challenges, as having most wealth tied up in a house can leave seniors cash-strapped. Options such as selling, renting, reverse mortgages, or the Home Equity Access Scheme can provide additional income but require careful consideration.
“While the amount that can be unlocked via the Home Equity Access Scheme is limited to 150 per cent of the maximum pension rate, there is a ‘no negative equity guarantee’,” Mr Haddad said.
Later Life Advice founder Brendan Ryan said the Home Equity Access Scheme was poorly understood. “It’s a great scheme, tremendously useful, and the interest rate is less than half of commercial equivalents,” Mr Ryan said.
Balancing Asset Imbalances
Longevity can lead to uneven asset distributions, such as owning a large number of shares in a single company. If that stock falls, it can significantly impact a retiree’s wealth.
Seniors should aim for balanced asset allocations to reduce risk. Unwinding complex investment structures, like self-managed super funds, may be necessary to ensure financial security, especially when considering aged care options. Selling assets gradually to spread out capital gains might help prevent a hefty tax bill later.
Coping with the Death of a Partner
The death of a spouse can have significant financial implications, including reduced pension payments and changes in Centrelink tests. Understanding these changes and planning for them is crucial. For example, if a spouse is receiving a superannuation drawdown and the other spouse dies, there may be delays in accessing the funds, leading to financial difficulties.
Additionally, there is a de facto death tax in Australia related to superannuation. When someone passes away without a spouse or dependent beneficiary, a significant portion of their super balance can be taxed when passed on to independent beneficiaries like adult children.
To avoid this tax, financial planners have developed strategies such as re-contributing or slowly reducing the amount of money in your super nest egg.
Utilising Superannuation
Seniors often hesitate to use their superannuation, viewing it as a legacy for their children. However, accessing superannuation can provide essential funds for end-of-life care. Discussions with family members about using these funds for care can help align financial decisions with personal values and wishes.
A majority of adult children want their parents to use whatever money they need to age with dignity. We all get just one shot at end-of-life care, and death.
Managing Rising Funeral Costs
Funeral costs have risen significantly, requiring seniors to plan ahead to avoid financial strain on their families. A recent report by Australian Seniors estimated that funeral costs have increased by more than 20 per cent for burials and cremations in the past four years. In 2023, the average burial costs $11,039 and the average cremation now costs $8045.
Understanding the various costs involved, such as transportation and catering, can help in making informed decisions and avoiding disagreements among family members.
Avoiding Family Disputes
Disagreements over inheritances can lead to costly legal battles and strained family relationships. Discussing inheritance plans and end-of-life wishes with family members can help prevent misunderstandings and conflicts. Open communication and clear documentation of intentions can reduce the likelihood of disputes. Consequently, if disagreements become full-blown family arguments, lawyers can get called in and everything gets expensive – potentially wiping out much of mum or dad’s inheritance.
“The more we can have these conversations before we die, it can help to prevent some of that shock and disagreement,” Ms Noonan said.
Discussing End-of-Life Matters
Talking about ageing, disease, and funerals can be challenging but is essential for planning. Early discussions can help ensure that a person’s wishes regarding care and end-of-life decisions are understood and respected. Understanding the options available for care and support can help seniors and their families make informed choices.
Ms Noonan says a majority of Australians did not die suddenly. “Seventy to eighty per cent of people die of things we know we are going to die of … Think about what care might occur in the last months and weeks of life.”
Addressing Home Care Needs
Many seniors wait too long to seek home care assistance, leading to delays and long waiting lists for services. Understanding available aged care packages and seeking assessment early can ensure timely access to support services. Planning ahead for home care needs can help seniors remain independent and in their homes for longer.
Understanding Aged Care Financials
Moving to an aged care facility involves financial decisions, including choosing between lump sum payments for a refundable accommodation deposit (RAD), an ongoing daily payment, or a mixture of both. RAD’s are complex and can cost hundreds of thousands of dollars depending on the facility, unaffordable for many retirees. Daily payments are means tested to protect the most vulnerable, but there are financial choices to make.
Mr Ryan says, “if you choose not to pay the RAD, you are paying a high interest rate – it’s 8.15 per cent. Start looking into the numbers to give you some comfort. Look at aged care providers near you and look at the government star ratings online.
Researching aged care providers and understanding government support options can help in making informed decisions, such as www.myagedcare.gov.au. Seeking advice from financial professionals can also provide clarity on the complex financial aspects of aged care. Read more articles on aged care here.
Documenting End-of-Life Wishes
Having a will, enduring power of attorney, and advanced care directive is crucial for ensuring that a person’s wishes are followed regarding their estate and end-of-life care. These documents should be prepared with professional guidance to avoid potential conflicts and ensure that a person’s wishes are carried out as intended.
Mr Haddad said where there were multiple beneficiaries of a person’s estate, it was preferable that a will was organised by a professional estate planning lawyer to minimise later family conflict.
Beware of cheap, simple DIY will kits, which can cause plenty of problems if a family feud happens.
Navigating the financial intricacies of ageing in Australia requires foresight and planning. The ten financial traps highlighted underscore the importance of early preparation and informed decision-making. By understanding the complexities surrounding family homes, asset management, superannuation, and end-of-life planning, seniors can safeguard their financial well-being and ease the burden on their families.
Seeking advice from financial experts and legal professionals is crucial in making sound financial decisions. By taking proactive steps and addressing these challenges head-on, seniors can ensure a more secure and stable financial future, enabling them to enjoy their golden years with peace of mind.
