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You get munted in a car crash. You’re on life support for 6 months. Your spouse can’t access your personal insurance because technically you are still alive, but you are in a coma and cannot sign the policy. You are a policy owner and the insurance company need all policy owners to sign before they release your insurance benefits. What happens?

Key Points:

  • Should you have a Will?
  • What is an Enduring Power of Attorney?
  • Why bother?

A Will is a legal deed where one person appoints another person (an Executor) to settle their estate in the event of death. All adults should have a Will. It makes life so much easier for those we leave behind. If your estate and possessions are fairly simple, then if need be, you can get an ‘off the shelf’ Will kit for under $100. Typically, these simple wills will not cater for situations where there is a family trust, or businesses and multiple investment properties. That said, plenty of law firms have very simple templated processes for you to follow if your situation is more complex.

If you don’t have a Will, then the courts need to appoint an administrator to manage the distribution of your estate. If your wishes have not been set out in a Will, then potentially your assets (and liabilities) will get divided by someone else’s wishes and not your own. The administrator fills the same role as the Executor.

The Administration Act 1969 sets out the rules of intestacy, which states who will receive what, if there is not a Will. For example, if there is a spouse or partner and also direct descendants (potentially from a previous relationship), the first $121,500 of the estate and 1/3 of the remaining property goes to the spouse first, then the remainder goes to the direct descendants. You can imagine that might cause some trouble for a modern blended family.

What is an Enduring Power of Attorney?

An Enduring Power of Attorney (EPA) is set up to ensure the best control of your affairs if you are incapacitated. There are two types of EPA

  • An EPA for personal care and welfare. This addresses questions about a person’s health if they are unable or incapable of making those decisions.

Think back to the person in a coma from the start of this article. Who can ‘turn the lights off?’ This Enduring Power of Attorney may have been given the authority to make a decision on the sick person’s behalf.

  • An EPA for property. This allows someone to make decisions regarding how your property and finances are managed should you be incapacitated or incapable of managing your own affairs.

This one is more relevant to our discussions around finance and risk protection. An EPA for property doesn’t have carte-blanche rule over your estate and affairs. As with both EPAs, their mandates must drawn up legally first, before any event has happened. It is another form of insurance if you will, to know that someone else can look after your affairs, according to your wishes, should you be unable to make decisions.

The Protection of Personal and Property Rights Act sets out restrictions so that attorneys cannot act for the benefit of themselves or others. Also, the question of mental incapacity must be determined by a medical practitioner.

Why bother?

While the topic of Wills and Enduring Power of Attorneys can be very dry, boring and unsexy, it is another part of personal risk management. If you have property (and you should include in that definition life insurance, KiwiSaver and other forms of personal property), do you want to choose what happens to it? Or would you rather that your surviving family deal with the mess that is caused by not having a Will? An EPA may be a more expensive next-step, but if you have a slightly more complex environment, it is probably worth the effort now.

Dominic Bish

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