How often do you ask yourself what would happen to your KiwiSaver account after you pass away? Probably not often right?
There are quite a few misconceptions when it comes to the discussion on ‘What will happen to my KiwiSaver money if I die?’ and we would like to debunk the myths below right off the bat:
- “If you die, the government will get it all,” MYTH!
- “KiwiSaver Funds are automatically sent to your spouse or de facto partner,” MYTH!
- “You can nominate a beneficiary to receive your KiwiSaver money,” MYTH!
You’re probably pretty curious as to what really happens. The good news is that according to Inland Revenue, the savings will be paid to your estate once you pass away. However, the time and convenience of such a transfer to your closest relatives will depend on how much money you have in your KiwiSaver account and the presence of your last will.
“The key to success is to have a financial plan in place to prepare for the future and the unexpected,” says Clive Fernandes, Director of National Capital, a trusted financial advisory company. Watch the below video to learn more about how you should approach your KiwiSaver account and financial planning.
For free, personalised KiwiSaver advice take National Capital’s Complementary HealthCheck .
After using National Capital’s No-cost HealthCheck tool, over 1000 Kiwis now have peace of mind about their KiwiSaver money and retirement savings. National Capital has helped Kiwis optimise and plan for over $70 million of their KiwiSaver retirement savings.
Before completing the HealthCheck, Luke and Tracy (Names changed) weren’t fully aware of what happens to their KiwiSaver when they turn 65 and after they pass away.
Both in their mid-fifties, they recently sought advice on their KiwiSaver funds. Being around 10 years away from retirement, they found it weighed more and more on their mind and they wanted to organise their finances.
Mark has a higher interest in finances than Debbie, but neither wanted to be caught unprepared and both wanted to plan for the future.
“We had a basic understanding of the different options but wanted to make sure we had the right plan for future circumstances,” says Mark.
Is personalized financial advice only for rich people? Financial Advisers say no.
Following their personalized recommendation, they now both have financial plans and documents that align with their current situation and plan for the future, while also now aware of the need to re-evaluate their plan if their situation changes.
“It’s good to know there are options for us and our KiwiSaver funds are definitely something we’ll revisit as we get closer to retirement or if there is a significant change to our current earnings and circumstances,” says Debbie.
Clive says that small changes today can result in valuable gains when it comes to unexpected or future situations. “Taking the time to seek advice and understanding the different options available puts people on the right track to achieve their objectives, and a plan helps people achieve that”.
Let’s look at two KiwiSaver money scenarios:
Scenario 1: Your KiwiSaver account balance does not exceed NZD$15,000.
In this scenario, your next of kin is not required to apply for the court’s approval for the management of your estate (also known as ‘Probate for a will’ or Letters of Administration if there is no will). Instead, your KiwiSaver provider can release the funds to your close relatives after a direct application from them. Your administrator or beneficiary will usually need to provide a copy of the death certificate. This is quite simple and easy. However, according to the KiwiSaver Annual Report released by Financial Market Authority (2019), the average KiwiSaver member's balance was around NZD$20,000 above the given benchmark. Hence, it’s important to have a look at the second scenario.
Important note: Inform your next of kin of your choice of KiwiSaver Provider, this will save them time and money in the future.
Scenario 2: Your KiwiSaver account exceeds NZD$15,000.
Given your account is above NZD$15,000, your loved ones have two potential instances. In the first (A) where you have a will, your close relatives would be required to make an application to the court which will grant them ‘probate’. Once probate is granted, your KiwiSaver provider will transfer the money to your estate. Your accumulated funds will then be distributed as specified in the relevant will.
In the second instance (B), when you pass away without a will the process can be costly, complicated, and quite stressful. At first, your family would be required to make an application to the court – specifically, for the appointment of an administrator, a person who is given the authority to deal with the estate assets on your behalf. Once "Letters of Administration" are granted, the administrator can start dealing with your estate, however, you need to be aware that the estate will not be distributed as per your will, but as prescribed by the Administration Act 1969.
Overall, the whole process can take anywhere between 6 and 24 months depending on the complexity of the estate. See the below figure for an easy overview of what could happen.
As you can see, increasing your KiwiSaver account balance is rather important, however, it is also crucial to ensure that your savings stay protected and that your loved ones can successfully receive your assets in the unfortunate event of your death.
If you already have a will, National Capital advises you to review it regularly every few years or as your circumstances change. If you do not have a will, we recommend seeking advice from certified professionals. Preparation today can save your family from financial hardship and legal battles in the future.
Inland Revenue states that around 60% of New Zealanders have a KiwiSaver account and more than NZD$5 million are withdrawn annually due to death. Despite such statistics, the majority of Kiwis do not pay significant attention to the protection of their assets including their KiwiSaver account after their death. So start now!
If you want help optimising your KiwiSaver account you can start by taking National Capital’s Free HealthCheck which takes around 5 minutes to complete and will offer you personalised KiwiSaver recommendations and advice.