What if you die with a large KiwiSaver balance? - Nick Stewart

You can spare your family a $3000 bill and up to three months of waiting for funds.

KiwiSaver is many people’s largest financial asset outside the family home.

Yet what most don’t realise is that these funds can create unnecessary complications for families should the sole account holder pass away - turning what should be a smooth transition into a royal pain.

Since its introduction in 2007, KiwiSaver has become the cornerstone of retirement planning for millions of New Zealanders. The scheme has weathered various legislative changes, from the removal of the initial $1000 sign-up bonus to reduced Government contributions and new provisions for first-home purchases.

While KiwiSaver remains an invaluable tool for building retirement wealth, understanding its limitations becomes crucial as we age. The very structure that makes it effective during our working years can create unexpected hurdles for our families later.

When someone dies with funds still in KiwiSaver, families will naturally expect quick access to help cover funeral expenses and settle affairs. Unfortunately, the reality can be quite different.

As KiwiSaver funds can only be held in a single name, probate is required to release them. Probate is a legal process that confirms the validity of the deceased’s will and authorises the executor to distribute assets.

This isn’t just a minor inconvenience; it’s a significant barrier that arrives precisely when families don’t have the bandwidth for unnecessary complications.

Peter Twigg, solicitor at Hawkes Bay law firm Langley Twigg, sees this scenario regularly:

“For couples that have everything in joint names - bank accounts, property, life insurance – they should consider closing their KiwiSaver accounts at age 65 and reinvesting in a joint investment account. This means the survivor will not need to obtain probate as all assets will automatically pass to the survivor.”

The numbers tell the story: probate costs as much as $3000 and has been known to take anywhere between three weeks and three months to obtain. For grieving families, these delays occur when KiwiSaver funds – often representing substantial accessible wealth – may be urgently needed.

Here’s the strategy that surprisingly few financial providers actively discuss: upon turning 65, KiwiSaver members gain complete access to their funds.

This milestone presents the perfect opportunity to transfer assets to more flexible investment vehicles that can be held jointly with a partner or within a family trust.

This simple restructuring eliminates probate requirements, ensuring smooth asset transfer to surviving family members without legal delays or additional costs.

Financial advisers typically facilitate this transition as part of comprehensive retirement planning.

The benefits extend well beyond avoiding probate. Proper structuring creates what estate planners call a “clean set of affairs” for inheritances, helping the next generation navigate the process with minimal stress.

There’s also a compelling tax advantage. While KiwiSaver funds are taxed at the individual investor’s rate, jointly held investment assets share taxable income across both partners.

For couples with uneven earnings (which is common in retirement), this structure can reduce the average tax burden by effectively splitting investment income between partners in different tax brackets.

Families who’ve experienced both scenarios – assets trapped in probate versus properly structured holdings – report dramatically different emotional experiences during already challenging times of grief.

Despite obvious benefits, this strategy remains underused. KiwiSaver providers have little incentive to prompt withdrawals, while many retirees lack access to comprehensive financial planning that would identify this opportunity.

There’s also a notable absence of public education on this topic from government agencies and providers themselves. As each generation lives longer and relies more heavily on KiwiSaver funds, we’re seeing elderly individuals (some with cognitive decline) holding significant assets in single-name accounts, creating additional complications when enduring power of attorney is required to be activated.

For financial advisers committed to fiduciary duty, addressing this issue represents essential retirement planning. Acting in clients’ best interests means looking beyond immediate investment returns to consider how assets will eventually transfer to loved ones.

The restructuring solution requires minimal paperwork. You’ll typically need an application verified by a Justice of the Peace, solicitor or authorised person, followed by establishing a new investment structure that better serves estate planning needs. This relatively simple administrative task can save families thousands of dollars and months of unnecessary stress.

For those approaching retirement age, or those who’ve already reached 65 with KiwiSaver funds or investment assets solely in their name, experts recommend consulting with a financial adviser who can co-ordinate this transition as part of comprehensive retirement planning.

This isn’t just smart financial planning. It’s ensuring your family won’t face unnecessary burdens during an already challenging time. It’s about balancing good stewardship of your financial resources with consideration for those who will one day manage your affairs.

This King’s Birthday weekend, as we reflect on legacy and the smooth transition of responsibility, consider whether your KiwiSaver strategy truly serves your family’s long-term interests. Don’t let your retirement crown jewels become a burden for those you leave behind.

If you’re in this situation, don’t delay; consult with a trusted, fiduciary financial adviser about making your KiwiSaver reign supreme for generations to come.

· Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.