Pre-planning a funeral Pre-planning a Funeral Your Options?

Pre-planning a funeral Pre-planning a Funeral Your Options? Greg Bird Dip FP National Manager Business Development Lifeplan Funds Management

Pre-planning a funeral Many important decisions in life… Travel….Marriage...House …Kids…Life Insurance….Will Pre-planning a funeral - stigma My folks… Most important thing is to document your wishes You’re not alone in your thinking! Nearly 1,000,000 Australians > age 55 have pre-planned Introduction

Pre-planning a funeral “When my husband died I was left with a huge cost to bury him....I don’t want that situation to occur to my family” “To give my son a little help with dealing with the cost of a funeral” “My Mother is suffering from dementia and I did not want the trauma of organising a funeral at the time of her passing” “So I get a decent send-off” Market Research – Some Comments

Pre-planning a funeral Who hasn’t seen the adverts? For just a cuppa coffee a day! Confused about pre-planning?

Pre-planning a funeral Five main options to consider with pre-planning a funeral:  Simply set aside money in a bank  Enter into a life insurance contract  Pre-arrange your funeral  Take out a Funeral Bond  Enter into a Pre-paid Funeral contract Options?

Pre-planning a funeral Advantages  Shows you are thinking ahead  Reducing others financial hardship Option 1 - Money in a bank account Disadvantages  Not the wisest use of your money - subject to income tax  Deemed an asset and may affect your pension entitlements  Doesn’t ensure sufficient funds  Does not ensure funds will be used for the correct purpose!  Does not ensure your funeral wishes will be carried out

Pre-planning a funeral Advantages  Seems very cheap!  Automatic cover Option 2 - Life insurance contract Disadvantages  Compulsory payments to age 90 or more  Fail to make one monthly payment - contract cancelled  No redemption value  No pension advantages  Does not cater for emotional decisions/issues  Limited cover in 1st year - accident only  Benefits generally non-assignable  Doesn’t guarantee money used for funeral!

Pre-planning a funeral Option 3 – Pre-arrangement  No money involved  At the very least document your wishes  Answer some of the 50 questions  Nominate your funeral director?  Burial or cremation?  Type of service?  Coffin or casket?  Readings?  Music?  Complete a personal profile booklet

Pre-planning a funeral Option 4 - A Funeral Bond Advantages  Capital guaranteed; not assessed by Centrelink  Secure investment in your name  Financial advantages – tax effective & pension benefits  Invest up to $12,000 to cover funeral expenses  Can nominate preferred funeral director Disadvantages:  Hoping that investment returns keep pace with price rises  Investment must be used for funeral expenses  Family still has to go through all the anguish of organising funeral

Pre-planning a funeral Option 5 - Pre-paid Funeral Plan What is a pre-paid funeral plan?  Contract between yourself and your chosen funeral director for future funeral service  Formally records the exact details of service – all questions answered  Not deemed an investment so pension advantages  Service costs fixed and guaranteed at today’s prices  Investment held at arms length from funeral firm  Pre-paid funerals governed by specific SA legislation  Money available should funeral director sell

Pre-planning a funeral

Education Funding Investing in a child’s education is an investment in their future What are your options?

In the media…

“…We’re just popping out to get your tuition fees…”

The cost

Concerns Children later in life Mortgage Swamped with bills Employment stability Expensive schooling years coinciding with peak retirement saving years

Pitfalls for younger investors Tax changes for most children mean anybody investing for their children or grandchildren may need to consider new strategies. Until 2011, a minor (child aged less than 18 years) could effectively earn investment income of $3,333 a year tax-free which was equivalent to about $95,000 invested earning 3.5% pa. But from 1 July 2011, this tax free threshold was reduced to $416 as minors will no longer be eligible to claim the Low Income Tax Offset (LITO) which had helped reduce tax by up to $1,500 per annum. This represents a reduction in funds that can be invested in the name of children - from $95,000 to around $11,000 - assuming an annual earning rate of 3.5%.

What is the solution? Repay debt Invest ~Child~ Invest ~Parent~ Family Trust Super Scholarship Plan

What to look for in an Education Fund Are they structured under Scholarship Plan provisions – Income Tax Assessment Act 1997? Who can invest? Is there investment portfolio choice? Is there an age restriction on the student? Are separate plans needed for different stages of education? Are there contribution restrictions or regular commitments? Who decides when to receive payments – the investor or the provider? Can the investment be accessed for non education expenses?

Investment Bonds & Scholarship Plans

What are the advantages? Special tax advantages –Tax free withdrawal of investor contributions –Utilise student tax threshold - withdrawals of investment returns/education tax benefit is income of the student Withdrawals within tax free limits Contributions at any time –Lump sums –Regular savings Estate planning features Bankruptcy protection

Estate Planning features Plan Guardian Looks after plan if investor dies or becomes intellectually disabled Administers investment in the best interests of the student Limited capacity to amend investment arrangements Independent of Power of Attorney and Will Nominated Beneficiary Receives investment proceeds should student die after the investor’s death Tax free proceeds Avoid delays in Probate

LEIF - What can be claimed? Tuition fees –Primary/secondary –TAFE/tertiary –Special needs –Adult learning HELP fees Uniforms Books and materials Music lessons; Swimming lessons and sports equipment Internet expenses School outings and camps Overseas courses Travel to and from campus Living away from home allowance

How does the Tax work? Investor Contributions Access any time for any purpose with no tax consequences. Investor Earnings Earnings are taxed at the Corporate rate (up to 30%) & paid by Lifeplan. If funds in this account are used for Education Expenses Lifeplan claims back the 30% tax paid from the ATO and this becomes part of available funds to spend on education If funds are not used for Education or withdrawn by investor Investment Bond rules apply. 30% tax offset applies. If Student <18 ( ) Student can receive $416 per financial year tax free Portion of withdrawals >$416 is declared assessable income. If Student >18 ( ) Normal adult tax free threshold applies The tax liability is passed to the student. Lifeplan’s Easyclaim facility makes this allocation easy.

Withdrawals

But wait; there’s more…

Pre-planning a funeral Pre-planning a Funeral Your Options?