Part Two: Asset and Estate Planning 101

Like the finance industry, the legal profession loves a bit of jargon. Before we dive into the detail, let’s set the scene.

🚨 Denotes parent-specific points in our guide.

What’s the purpose of an asset and estate plan?

Asset and estate planning play two key roles:

It determines how your assets are to be owned and dealt with, both during your lifetime and after you pass. It’s worth highlighting that we’re not just talking about who gets the ugly but valuable vase your Aunt Yolanda gifted you and insisted on seeing on display.
It protects your financial resources from risks. What types of risks? Let’s quickly cover those off.

Risks everyone faces

The biggest risk that we all face is death and incapacity (no surprises there).

While you’re alive, your estate can also face risks from:

Any business activities, such as creditors seeking repayment or other liabilities such as health and safety claims
Lack of cash flow and/or liquidity
Inflation, taxes, regulations and other economic factors
Fragmentation, e.g., the splitting up of farmland and family businesses

🚨 Extra risks parents face

Like many other aspects of parenthood, there are additional considerations for caregivers.

First, there is the risk of family disharmony. For example, your relationship breaks down, or perhaps sibling rivalries emerge.
Second, there’s what can happen with vulnerable family members, such as young children, those with disabilities and those who are spendthrifts, have harmful addictions or are financially uninformed.

In short, high-speed curveballs can come from many areas of your life. Asset and estate planning can help insulate what’s financially valuable to you from these forces.

🚨 Why is an asset and estate plan especially important for parents?

There’s no one-size-fits-all approach. Each plan needs to take into account your personal circumstances. As parents, your asset and estate plan will need to be structured to protect your interests and your children's interests.

Here are common real-life questions to consider:

If you have a partner, who actually owns what? Do you own everything together? Or do you own some of it separately? Or maybe all of it is separate?
Who would you want to care for your child if you and your child’s other parent pass away or are incapacitated?
What happens if one parent dies and the surviving parent enters into a new relationship? How can your child’s interests be protected?
Is anyone in your family particularly vulnerable? If so, what needs to be done to protect them?
Would you like to give your child any money? If so, at what age or stage of life? How will you balance this against concerns that giving them money when they’re young may stop them from learning to stand on their own two feet?
Do you want to preserve and enhance your wealth over the long term to benefit future generations of your family? If so, how can this be achieved?
Do you have any wishes concerning what should happen to certain assets, such as a family home or business?

If your head is spinning, don’t worry. The rest of this series dives into how you can implement legal safeguards to address these concerns.

What actually is an asset and estate plan?

Let’s get clear on the jargon first.

Assets: This is what you own. This includes any items of economic value, such as money sitting in the bank, your car, your home, your KiwiSaver and investments, and any collectibles (e.g., artwork or rare sneakers).

Liabilities: This is what you owe. These are your financial obligations, such as your mortgage, credit card debt, student loans, car loans and outstanding bills. When you pass away, these are paid before your loved ones receive anything.

Ownership types: you might own or owe these individually, that is, they are in your name and you control how they are managed. Or you might own or owe these jointly, where they are held in the name of two or more parties.

Estate is the legal term used to encompass all your assets after you’ve passed away.

The most common features of an asset and estate plan are:

Wills
Enduring powers of attorney
Advance directives
Trusts and other methods of holding assets (such as companies and partnerships)
Relationship property agreements and other property-sharing arrangements

Don’t worry if these legal agreements don’t mean anything to you or if you only have one or two of them in place. We’ll explore each of these in this series with a particular focus on what you, as a parent, need to consider when undertaking your asset and estate plan.

This is part of Crayon’s mini-series on asset and estate planning for parents:

Now for the important legal part: The information we provide is general and not regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. Please seek independent legal, financial, tax or other advice in considering whether the content in this article is appropriate for your goals, situation or needs. The information in this article is current as at 3 February 2023.

All of our content is independent. Crayon provides you with accurate and valuable information you can use to make smart money moves for your family. We work with people we respect, and all collaborations are unpaid.