Estate Planning: Why Wills are so important.
No-one likes to contemplate their mortality. As an adviser getting people to address the topic of Wills and the distribution of assets in the event of their death are usually met with dismissive attitude. In fact a significant percentage of the clients I see do not have a valid Will or insurance to cover debts/liabilities should tragedy befall them. Many people just assume that either someone else will take care of it or everything will automatically go to the ones they love the most.
This is definitely not the case. What happens in the event you don’t have a Will even differs from each Australian State and Territory.
Doing a Will is the first thing a person should do. Maintaining it and ensuring that it remains current is a close second. It is important that this is done as a person can accumulate a significant amount of capital over their lives and if the worst was to happen this person would no doubt want the estate to be distributed as soon as possible.
If you have a mortgage or large levels of debt it is a prudent measure to ensure this debt ends with you. This is main purpose behind Life Insurance. With the average mortgage in Australia falling between $200-300k this would be too heavier burden for a partner/spouse to handle with the loss of a loved one (and their income). Add to this the costs associated with raising and educating children and you have a financial burden too big to bear. Making the effort to insure for these debts and liabilities (or at least some of them) will be mean that should the worst happen, life for the family left behind will not be one of financial ruin but will continue as normal (at least as normal as possible) and allowing the family to cope with the loss without having to have an asset fire sale.
An option can be applying for Life insurance through Superannuation, which can help ease the out of pocket expense while still getting the required amount of cover. Seeking the advice from a Financial Planner will assist you in determining whether to apply inside or outside of super as the best option will depend on the individual circumstances.
Divide and Conquer or the Family Bank: The story of Cornelius Vanderbilt vs. Mayer Amschel Rothschild
The Rothschild’s and Vanderbilt’s have a history of enormous wealth and success. The Rothschild’s wealth was built through banking and finance starting around the middle of the 18th century led by Amschel Rothschild and later his sons. The Vanderbilt’s wealth was driven by Cornelius Vanderbilt around the turn of the 19th century and came from manufacturing steel, shipping and the construction of the American Railway network. If the wealth of either of these families was to be converted into today’s dollars their family wealth would eclipse that of Buffett, Gates and Soros.
These two family’s enjoyed great fortune but they differ in one very simple way, estate planning!
The Vanderbilt fortune upon the death of Cornelius Vanderbilt (also known as the Commodore) was divided among the Vanderbilt family. Each family member received what would have been a substantial sum which would certainly help them to build their own empires and continue the family tradition. This was not the case. As money had come so easily to these family members until the death of the Commodore they continue to live the same lifestyles and it didn’t take many generations until those that carried the Vanderbilt name were about as rich as your average citizen. By dividing the fortune, which then would have been divided again and again meant that as the Vanderbilt family moved through the generations they no longer had a grip on was what originally the family business and now had to work for it just like everyone else.
The Rothschild’s on the other hand did something completely different. Upon the death of Mayer Amschel Rothschild, using the knowledge gained from growing the family banking empire, Amschel created the Family Bank. The Family Bank (think of this like a trust) was where the family fortune was paid into. The five sons were set up as trustees of the Family Bank. Rather than a family member receiving in inheritance they were able to loan money from the family bank to start a business. Not only did the money need to be repaid (at a heavily discounted interest rate) but the knowledge that person had gained and the competitive edge they had on the market also had to be shared. The purpose of this was to ensure that each family member developed a value for money, they were able to loan money and avoid massive interest rates and they also contributed to the growth of the family fortune.
The Rothschild family today is still renowned for their wealth and are still leading the banking industry all over the globe.
What a difference a bit of planning and forethought can make.
When you do seek advice on estate planning give some thought to the above story as it has so much merit. You may not have a level of assets in the same league as the Rothschild’s or Vanderbilt’s but what you can build over time through effort and hard work can amount to quite a surprising sum.
Make the effort, do the planning and importantly seek advice, read up on the topic yourself. No one will do as much for you as you can do for yourself.
