What Happens to KiwiSaver When You Die? An In Depth Guide

by | Jun 6, 2024 | Wealth Management

Thinking about what happens to KiwiSaver when you die isn’t the most cheerful topic, but it’s important to know. Whether you’re planning your estate or just curious, understanding this can bring peace of mind.

When you pass away, your KiwiSaver funds will be paid out to your estate. This means they become part of all your assets, including things like your home and bank accounts.

Specify in your will who you want to inherit your KiwiSaver savings. If you don’t have a will, New Zealand’s laws will decide who gets your money, which might not align with your wishes. Knowing this gives you control over how your investment benefits your loved ones after your death.

Making plans can feel daunting, but it’s a smart move. This simplifies things for your family during a tough time, helping them to manage your estate smoothly.

KiwiSaver as an Asset in Estate Planning

KiwiSaver is an important asset in your estate planning. It is treated separately from assets like joint bank accounts or property. This means it is individually assessed and distributed according to your will. Including your KiwiSaver in your estate plan ensures that your financial wishes are respected.

When planning your estate, consider the balance of your Kiwisaver fund. Higher balances may require more detailed planning to avoid complications. Ensure all your assets, including Kiwisaver, are listed in your estate plan. This planning provides clarity for your executor and beneficiaries, helping to avoid disputes and legal hurdles.

Proper estate planning, including the management of Kiwisaver funds, ensures that your financial resources are handled according to your wishes and New Zealand laws.

What Happens to KiwiSaver When You Die

When you die, your KiwiSaver funds are not immediately passed to your beneficiaries. Instead, they are added to your overall estate. Your executor, the person you’ve appointed in your will, handles your estate.

If you haven’t appointed an executor, the court will appoint one. The executor must apply for probate, a court process that confirms their authority to manage your estate. This process can take time, depending on the complexity of your estate.

Once probate is granted, the executor can access your KiwiSaver balance. They will then follow the instructions in your will or intestacy laws to distribute your assets.

Involvement of the KiwiSaver Provider

Your KiwiSaver provider plays a minimal role in the distribution process. After your death is verified, your provider will transfer your KiwiSaver funds to your estate. It’s important to note that you cannot nominate beneficiaries directly through your KiwiSaver account.

The provider is responsible for providing information about your KiwiSaver balance. They may require a copy of the death certificate and probate before releasing any funds.

Providers ensure compliance with legal requirements but do not decide how funds are distributed. That responsibility lies with the executor or court-appointed administrator.

Distribution of KiwiSaver Savings

The distribution of your KiwiSaver funds depends on your will. If you have a will, the executor will follow your instructions to distribute the funds.

If you do not have a will, your KiwiSaver funds are subject to the Administration Act 1969. This means your savings will be distributed according to intestacy rules set by the Public Trust NZ.

If your account balance is under $15,000, it may be fast-tracked and probate may not be required (see below for further information).

The executor or administrator will consider any debts and taxes before distributing the remaining funds. This ensures that all legal obligations are met before your loved ones receive their inheritance.

Here’s what you need to know about the probate, letters of administration, and the impact of intestacy on KiwiSaver disbursement.

Probate and Administration Act

Probate is a legal process where the High Court confirms the validity of a will. If you have a will, your executors must apply for probate to distribute your assets, including your KiwiSaver.

This process can take some time and involves presenting the will to the court.

If your KiwiSaver balance is less than $15,000, probate might not be required. This exception helps speed up the process and makes it simpler for your loved ones to access your funds.

Letters of Administration

If you die without a will, your KiwiSaver funds need to be managed by someone appointed by the court. This person receives letters of administration to handle your estate. They basically act like the executor but are appointed because no will designates one.

Your appointed administrator will use the guidelines from the Administration Act 1969 to distribute your KiwiSaver funds. This can be a longer and more detailed process, as the High Court needs to ensure that the assets are distributed fairly to the right people.

What is Intestacy?

Intestacy occurs when you die without a will. Under intestacy laws, your assets, including KiwiSaver funds, are distributed based on a set formula outlined in the Administration Act 1969. Usually, this means your closest relatives, like spouse, children, and parents, are prioritised in receiving funds.

If your KiwiSaver account holds less than $15,000, your next of kin can sometimes claim these funds without going through probate. The Administration Act ensures your assets are handled fairly, but the lack of a will can make the process more complex.

Planning your estate can save your loved ones from navigating these tough legal waters.

Accessing KiwiSaver Prior to Death

You may need access to your KiwiSaver funds before you retire. There are specific conditions under which you can withdraw your savings early. The two main reasons are severe illness and significant financial hardship.

Early Withdrawal Due to Illness

You can apply for an early withdrawal from your KiwiSaver account if you suffer from a serious illness. This includes situations where you are diagnosed with a terminal illness. In these cases, doctors must confirm that your condition is terminal. You will need to provide medical evidence to support your claim.

The release of funds in such circumstances is intended to provide financial relief during a difficult time. Your KiwiSaver provider will guide you through the necessary paperwork. Processing times can vary, so it’s important to submit all required documents promptly.

Financial Hardship Considerations

Significant financial hardship is another reason to access your KiwiSaver savings early. If you find yourself unable to meet essential living expenses, you may qualify for an early withdrawal. Essential living expenses include things like mortgage payments, rent, or utility bills.

Before approving a withdrawal, your KiwiSaver scheme will require proof of hardship. This might include bank statements, overdue bills, or a letter from your employer. Keep in mind that only part of your balance may be released. This decision is based on your specific financial situation and needs.

Planning for the Future

When thinking about what happens to your KiwiSaver when you die, it’s important to make sure your funds are protected and managed according to your wishes. This involves setting up a trust, designating beneficiaries, and regularly reviewing your instructions.

Setting Up a KiwiSaver Trust

A KiwiSaver trust can help ensure your savings are used the way you intend. By placing your KiwiSaver funds in a trust, you can appoint a trustee to manage the funds on behalf of your beneficiaries. The trustee will follow your instructions and distribute the funds according to your wishes, ensuring your loved ones are provided for after you’re gone.

Setting up a trust involves legal documentation, so it’s wise to consult with a lawyer. They will help you draft the necessary paperwork and ensure everything is in order. Working with a professional ensures that your KiwiSaver trust meets all legal requirements and that your funds will be handled correctly.

Designating KiwiSaver Beneficiaries

While you cannot directly nominate beneficiaries through your KiwiSaver provider, you can still designate them through your will. It’s important to clearly state who you want to inherit your KiwiSaver funds to avoid any confusion or disputes.

Update your will regularly to reflect any changes in your relationships or wishes.

Regular Review of KiwiSaver Instructions

Reviewing your KiwiSaver instructions regularly is essential. Life circumstances change, and so might your plans for the future. Make it a habit to revisit your instructions every few years or whenever there is a significant change in your life, such as marriage, divorce, or the birth of a child.

Regularly checking in can help ensure your funds are managed as you desire. Stay informed about any updates or changes to KiwiSaver regulations that might affect your investment. Keeping everything up-to-date ensures your KiwiSaver funds are protected and that they serve their intended purpose after you are gone.

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