Many individuals today are concerned about protecting their children's inheritance in estate planning. This is especially important when the surviving spouse is not the biological parent of the deceased's children, as they may prioritise their own interests over the children's inheritance. There are also cases where the surviving spouse may not be suitable to manage a significant inheritance due to substance abuse, physical or mental health issues, or lack of experience.
To address these concerns, there are various estate planning strategies that can be implemented. One approach is to provide the spouse with income from the estate's capital, rather than giving them full access to the capital itself. This ensures that the surviving spouse can benefit from the assets during their lifetime while safeguarding the capital for the children. Another strategy is to limit the amount of the deceased's estate that the surviving spouse can access.
There are different methods to achieve these strategies, such as creating life estates or granting the right to occupy the matrimonial home instead of ownership. Another option is setting up testamentary discretionary trusts, where the surviving spouse is not the sole trustee and therefore does not have complete control over the assets.
For individuals with significant super balances, a non-commutable pension may be worth considering. This type of pension cannot be converted into a lump sum and ensures that the surviving spouse receives regular payments rather than a lump sum. The maximum annual pension payment can be set by the will maker, which determines the amount the surviving spouse will receive each year.
Once the surviving spouse passes away, any remaining capital supporting the pension becomes part of their estate. To ensure that this capital is distributed to the children, the will maker can specify that it be given as a lump sum to adult children or as an income stream for minor children.
In conclusion, if a non-commutable pension is the right choice for your family situation, it is crucial to ensure that the pension is drafted with careful consideration to address the various challenges that may arise. This involves ensuring that the pension plan is designed in a way that meets your specific needs and circumstances.
Additionally, it is vital to have a supporting binding death benefit nomination in place. This nomination will provide a clear and legally binding directive on the distribution of your benefits upon your death, leaving nothing to chance. By carefully considering and addressing these elements, you can protect your family's financial future and ensure that your pension benefits are distributed as intended.
Do you have a will? Has it been a while since you got it updated? A major life event like divorce or a new life partner is a good time to check how you are placed. A Financial Planner is a good place to start. We work with a Lawyer to ensure all bases are covered. Need help? Get in touch.
Kylie Harding is an Investment Adviser who believes in free access to information about building financial literacy at every stage in life has the potential to empower women and inspire economies.
Contact Kylie today on [email protected] or 02 9998 4206.
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