The following are common issues or snippets that we notice in conversation with clients and other professionals. We wanted to share these with you so you, or your family, can avoid some potential pitfalls.
• Property in a trust – is the insurance cover for the building in the name of the trust, or at the very least is the trust noted as owner on the policy?
This became an issue after the Christchurch earthquakes when insurance settlements to policy owners did not reflect the correct ownership of the property, only to become more complicated when a lender was also involved. Failing to treat any trust property as a separate asset can result in the trust being set aside as a sham.
• Property owned by a trust – is your sum insured adequately?
Most insurers have moved away from a full replacement wording to now requiring a sum insured to be noted. Underestimating the replacement cost is a significant risk for every policyholder, but when a trust is involved each trustee is responsible. Underinsurance places the trustees at risk of action from beneficiaries – imagine how unhappy they would be when the insured amount only extends to rebuilding half a house!!
The cost of building also varies dramatically depending on where in the country you live, the type of site and also needs to cover demolition and site rehabilitation costs. The best way to get an accurate estimate of rebuilding costs is to engage a professional such as a Registered Quantity Surveyor.
• Property in a Trust – does your Will reflect this?
From time to time we meet people who have used different legal advisers to complete individual estate planning functions. The effect of this ‘pick’n’mix’ approach can be a Trust deed and a Will that work against each other, totally defeating the original purpose.
• Only old people need an Enduring Power of Attorney, don’t they?
In short – no! If you have any form of personal insurance cover, such as Income Protection or Critical Illness cover you will be required to sign a claim form before any funds can be paid to you. If you are incapable of doing this the claim will be delayed while an application to appoint an Attorney is made in Court. In addition to delaying any claim by several months, this process can cost up to $10,000. Enough said – a small cost now can prevent this.
And finally the perennial favourite….
• Make a Will – it may seem a simple piece of advice, but as advisers, we are still stunned by how many have not attended to what we regard as ‘Estate Planning 101’. It is estimated that as many as 50% of the adult population have neglected this basic part of estate planning. A will is also the most common method of appointing guardians for dependent children. We don’t know what tomorrow holds – take care of this today!!