Inheritance is a privilege and not an entitlement, says barrister Rhonda Powell. Photo / 123RF
Q: Last week’s letter regarding boys getting the lion’s share of parental financial help really got to me.
We were financially very secure, we put both son and daughter through private schools. Our daughter flew high and finished uni with first-class honours. Our son left school by mutual agreement at just 16. School was a terrible time for him. In his last year he was diagnosed with a learning difficulty, but by then it was too late.
Long story short, he went to family overseas to break bad friendships and habits. He has worked his tail off since then, as has his wife. Kids going into daycare at six weeks etc. Our daughter had a career, met a driven man, married, and two kids later they are very wealthy.
Unfortunately, we lost all of our financial security. It happens. Our big struggle is the little we will have to leave will mean not a lot to our daughter and family, but would be life-changing for our son and family.
Our daughter doesn’t see it that way. She thinks anything we leave should be 50/50. Where do you go with that? Anything less would be an insult to our daughter and cause a rift between them. Her husband will inherit very well. What do I do? It keeps me up at night worrying.
A: I can well imagine. This goes way beyond my expertise, so I sent your letter to Rhonda Powell, a barrister who specialises in trusts, wills, estates, equity and family property.
“Inheritance is a privilege and not an entitlement,” she says.
“Equality does not mean treating people exactly the same. Some people have seen or unseen disadvantages which hold them back. In the letter the son had an undiagnosed disability. He needed extra support to reach the same goal and he missed out.
“There is a useful visual about substantive equality that you may draw on here – have a look online. It has several differently statured people watching a sports match, and some need a higher stool than others to see over the barrier.
“On the private schooling example some children will only thrive in the smaller classes and more structured environment but others would thrive anyway. Parents can help their children to thrive in different ways and at different times, and that is okay,” says Powell.
“I would advise the parents to provide based on their conscience and their children’s needs. Make a gift to each child, but they don’t need to be the same. Make sure the daughter gets at least 20% of the overall estate (to protect against the likelihood of a claim) and include a letter to explain why.”
She adds, “I would never advise to punish a child through reduced inheritance. This is not that scenario.”
A final thought from her: “Or provide some extra lifetime support for the son or his children and then make the will equal.”
The 20% bit got me wondering. “Is that a rule, or just a convention?” I asked Powell.
“The courts used to have ‘rules of thumb’ for estate claims, and the ‘rule of thumb’ was 10% for an adult child of independent means,” she says.
“These days the courts state that the rules of thumb don’t apply, and yet they continue to do it! My suggestion of a minimum of 20% was to err on the side of caution. It would be difficult for an adult child of independent means to succeed in an estate claim if they already got 20% of the estate. However, it’s important for the will maker to consider all relevant circumstances.”
Several other people commented on the first Q&A last week. One said simply, “Unbelievable.” And read on.
Q: I see last weekend your lead article headlined “Sexism Reigns”.
Our family has trusts established in the 1950s that provide two shares for each of the boys to one share for each girl. These trusts were established in the days that the men worked for the family income, and the women kept house and raised children.
There was an expectation when girls married that their husband would support them, and that the man would need money for business and to buy a house for his wife and family.
In those days marriage was recognised, by those with the means to justify setting up trusts, as a sensible economic union “until death do us part”.
Please consider the way that “best practice” has changed in 70 years, and its effects on family stability. Perhaps women might reflect on how much they have lost with “winning” equality and independence.
A: And on how much they’ve gained? Can I suggest that you do some reflecting too – on the position of women back then who had good husbands but who, nevertheless, felt unfulfilled, or even stifled, by so-called domestic bliss?
And that’s to say nothing of the many women whose marriages were a trap. Without much in the way of qualifications or work experience, and with children to care for, they simply couldn’t leave loveless and sometimes violent marriages. The violence went unnoticed because police dismissed it as “domestic”.
I’m not saying all women disliked the set-up back then. But many struggled.
Good riddance to that way of doing things! And please change those trusts.
Q: We often see bits from the Retirement Commissioner in the Herald or, say, from Manatū Wāhine, the Ministry for Women, in your column last week. The broad thrust of these comments is that women enter retirement disadvantaged when compared with men.
But this view is tragically ill informed. A tertiary educated Pākehā woman gets $750,000 from NZ Super in her lifetime compared with say, a Māori or Pasifika man who receives nothing at all. Men do the heavy lifting on funding retirements for those who get them.
I think we need a major rethink. Choose the average lifetime per person NZ Super payout. If it were $400,000, start to pay $25,000 per person per year 16 years prior to death. (This information is well known and understood and easy to calculate.)
For a non-tertiary educated Māori man, payments would start at say 48 years old, for our tertiary educated Pākehā woman the benefit would start at 75. We stop discriminating on the basis of sex, race and education and, simply, no one could possibly object. It would draw a line under the current preoccupation women have about being hard done by.
A: Firstly, to explain to others, the zero for Māori or Pasifika men is because many die before they reach 65, when NZ Super payments start.
Last week I said it would be a nightmare to pay different levels of NZ Super depending on where you live. Your proposal would be a multi-nightmare!
While there are average life expectancy numbers for different groups, within each group there’s huge variation. Some questions that would crop up:
When there’s considerable money at stake, people could get quite creative about how to present their circumstances. We would need heaps of bureaucracy to check people’s claims.
Thanks for an interesting idea. But contrary to what you say, I think many people would object.
It might be helpful to think of NZ Super not so much as a payment that everyone is entitled to, but as the way New Zealanders support older people. Those who live longer often need more total support. So be it.
Q: Letter from Alec Waugh, chairman of Kaspanz, which describes itself as “a voice for consumers in the retirement income discussion”.
Last week’s column stated “about half 65- to 69-year-olds work full- or part-time, and many continue work after that.”
I contest that presumption. The definition of paid work captures those working only one hour per week, and also includes those seeking work. Regular part- or full-time work is only available to the educated, with rampant ageism and recruitment bias impacting those seeking work.
It’s an urban myth that the 65-plus workforce has the opportunity for regular employment, and the labour force definition needs urgent review, so the real situation is not skewed or camouflaged.
A: You make a fair point. There is definitely ageism in hiring. And you’re right that the workforce numbers include people working just one hour a week.
Still, along with the growing number of people who are able to continue their careers after 65, I hear of many retired people who do manage to find a new type of work, often part-time, or who turn a hobby into a part-time job.
Even earning, say, $100 a week can make quite a difference to a retired person’s financial situation.
Q: Letter from Ed McKnight of Opes Partners, property investment company.
Thanks for taking the time to look at our online article about retirement savings (mentioned in the first Q&A two weeks ago). You’re right to point out that the numbers on the Opes Partners website about what people “need” for retirement are higher than those shared in Massey University’s study.
You said this “is hardly surprising given they want to encourage people to invest”.
Do you genuinely believe that investment companies give misleading numbers for self-serving reasons? Or am I missing something here?
The reason our numbers are higher (and give a range) is that, as financial advisers, we see investors make different choices about their retirement.
For instance, Massey assumes that retirees save their money. Then gradually spend it all and die with $0.
In practice, some people want to live off the returns of their investments and not spend the principal. To do that, you need to save more. That’s included in the range.
Similarly, Massey assumes that you and your partner die at 90. But younger generations live longer. By the time my wife retires, she’ll have an 11% chance of living to 100 and is expected to live well past 90. That’s according to Stats NZ’s numbers. She’ll need more money to fund that longer life. That’s included in the range.
There isn’t one number that people need for a “good” retirement. It depends on the choices investors make.
That’s why we give a range, rather than one number like in the (very good) Massey University report. And also the reason why the upper end of the range is higher.
A: No, I don’t think investment companies give misleading numbers for self-serving purposes. But – as has been obvious in this column over the last few weeks – there’s a wide range of estimates of how much people need for retirement. And companies like yours do tend to use the higher numbers.
A company selling vitamins, looking at various research on how much people need those vitamins, is not going to quote the scientist who says we don’t need much of their products.
Furthermore, I think it’s a bit misleading to give a retirement savings goal that assumes the person will die with their savings intact – having spent only the returns on those savings.
You do say on your website, “This is if you want to live off the income your assets generate (passive income)”. But I suggest your main retirement totals should assume people’s savings are used up – which is the way actuaries and other experts do their calculations. You could always add the other total as a footnote.
I also think it’s fine to plan on your savings running out at 90, especially if you own your home mortgage-free. As I’ve said before, many people report that NZ Super is enough by then. And if you find you need more there are several options, including rates postponement, reverse mortgages, moving to a cheaper house and selling some assets. We’ll go into that more in the next few weeks.
What we should all keep in mind is that telling people they need what seems an unreasonably large amount for retirement can encourage people to:
Is that what we want?
Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
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