We all know the phrase “there are three things that are certain in life – death, taxes, and chocolate fish don’t swim”. So, why are there limited instruction manuals about how to deal with the plethora of issues that arise after the death of a loved one? It’s certainly not an uplifting topic, but awareness around the unexpected housekeeping and estate planning in advance is always welcomed by those left in charge.
None of us know exactly how much tread is left on our tyre, or how much runway is left (of course you don’t have to be elderly to pass away) but having formalised (and periodically revisited) some instructions around your wishes will certainly help complete that final piece in the jigsaw of one’s life. In a two-part series, let’s look at some of the basic keystones and matters that can get overlooked.
Many of us now have our assets held through a family trust, with few assets held privately other than personal chattels. With this in mind, we should have a ‘Last Will and Testament’ which is a legal document that allows you to state how to distribute your personally held property upon passing. In that document, you will likely nominate an Executor, who is the person(s) assigned to carry out the distribution of your assets in accordance with those wishes. That Will likely refers to material assets of value or heirlooms, but is unlikely to drill down to smaller chattels which may become contentious (e.g., photos, art, jewelry, etc.). If you pass away without a Will, then you are deemed to have died ‘intestate’ and your loved ones will then need to abide by the Administration Act 1969 whereby the High Court will consider the distribution of those assets, generally to the closest surviving family members, but maybe proportionately. So, useful to have a will, which is current. Of course, we do hear of Wills being contested, so where a Will may be updated\altered just prior to the date of passing away, it may be beneficial to go the extra step and get confirmation that the will owner is of ‘sound mind’ when making those amendments in order to limit any risk of a future contesting experience.
The personal assets distribution process is quite different from assets held\owned by a family trust. A family trust is deemed to be a separate legal entity and therefore you have already passed title to those assets when settling those assets into that trust(s). A trust may continue until the ‘final vesting date’ as defined in the Deed of Trust when first settled, however as a settlor trustee, you may separately, in addition to a Will, have a “Memorandum of Wishes” pertaining to that trust(s) assets. This memorandum records the desires of what you would prefer to happen to those assets of the trust, of which the surviving trustees must consider. Those wishes often would request that certain assets of the trust be passed to named beneficiaries, or the final vesting date of the trust be bought forward and title to those assets be passed early. This transfer is done by way of beneficiary distribution and\or resettlement of the trust’s assets. To complicate matters, as the settlor you probably held the rights of appointment of trustees to the trust(s). It may be that your Will requires your nominated executor to assume your position as trustee of those trusts. Another responsibility of the executor.
Before an executor can carry out the wishes of the deceased, they must first be granted ‘Probate’, which is essentially formal recognition by the High Court of the deceased passing (which is recorded on the Births, Deaths and Marriages Register) and it is only then that the executor can then act as the administrator of the deceased estate. An executor cannot act on any wishes prior to probate being granted. The probate application process can take up to six weeks to be granted and sometimes is held up due to the release of a certified death certificate, of which is attached to the application. It’s likely family and friends will have celebrated your loved one’s life well in advance of probate being granted. The death certificate is a critical document and required in many of the administration’s affairs, so taking a copy is a good move.
Once probate is granted, the ‘estate’ of the deceased is established, and all personal assets held by the deceased are administered through this recognised legal vehicle. Application\registration of the estate with Inland revenue will be necessary, and all incomes and tax affairs will now be channeled through this identity until the estate is fully wound up and deregistered. If an insurance policy is owned by the deceased, then any claim will likely be receipted by the estate. Where a bank account is required to be set up to administer any estate affairs, a copy of the death certificate will be required by the bank.
With probate being granted, several administrative and financial responsibilities will then need to be undertaken by the executor to close out the deceased personal affairs. These include advising Inland Revenue and preparing a final tax return to date of death (everything after this date will be recorded in the name of the estate), advising the Ministry of Social Development or other Departments of any income streams that need to be stopped (e.g., superannuation, disability benefits etc.), closing and collecting on any insurance policies, closing bank accounts, cancelling passport(s) and any driver’s licence, and advising any fund managers where share portfolios are held (which will need to transfer into the name of the estate until distributed in accordance with the Will). A copy of the death certificate will likely be required by the external parties annexed to these tasks. The executor can of course start distributing the assets of the estate in accordance with the Will.
There are however some day-to-day operational matters that may need attention and are often overlooked should there be a sudden, unexpected passing of a loved one. These include passwords and account access. Typically, in a couple’s arrangement, there is usually one person that knows or controls passwords and perhaps daily financial administration, meaning it can be difficult where the surviving person has limited knowledge of these affairs and access points. Clearly, this conundrum will likely occur when a loved one is living alone. Possible examples are Wifi codes, online banking passwords, iPad or similar logons, Sky\Netflix accounts, and current balances of utility commitments. It’s useful to retain a current hard copy list of passwords in a private, safely stored book for an unexpected loss (a soft copy would obviously be hard to access\find).
Finally, there can be some confusion when it comes to bank accounts with couples and a ‘joint’ account is maintained. There is a difference between a joint bank account, whereby a bank account is shared and owned by one or more persons, and the term ‘joint signatory’. The latter is a situation whereby a singular person may own the bank account, however, allows another person(s) signatory rights on that account (e.g., a partner or dependent). When that account owner passes, the surviving joint signatory(s) access rights may likely cease as the bank account(s) become an asset of the estate. It’s worthwhile checking with the bank the current status of the account(s) and whether the intended position is being reflected. You want to avoid access to available funds by a surviving partner may becoming an issue. We have found situations where a banking arrangement was set up not as intended, which does create headaches, as this writer personally experienced.
So, that’s the start of the process and what can be expected in the early days, but potentially the hard and contentious task of a loved one passing (outside of grieving) is the equitable distribution of the deceased assets, or of those assets owned in a closely held family Trust. How are these net assets valued, how are they distributed equitably when there is more than one beneficiary of an estate, and how can someone plan for this asset allocation while keeping that plan current prior to their passing? That of course is chapter 2 in this series, so be sure to keep your eyes tuned for that installment, which of course can be found at the same site\link you found this gem.