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Protect Your Wealth – Ensure Your Legacy Goes To Your Loved Ones

When you reach the end of your life, have you got assurance that your estate and financial legacy is securely passing into the hands of the ones you love?

Having a well organised and executed estate plan ensures that your assets are administered according to your wishes, instead of being decided on by the state. This also means that your estate will go to the people you have chosen specifically and not into the hands of others by default. It also allows for a person of your choice to make crucial lifestyle and financial decisions on your behalf, should you be unable to do so.

Australians are due to inherit approximately $3.5 trillion over the next 20 years, increasing at 7 per cent per annum. Beneficiaries will inherit an average of $320,000 . Approaches to wealth transfer can differ and include:

  • Within family business structures
  • Gifted pre-death transfer
  • Superannuation and life insurance policy death benefit nominations
  • A well organised will

If an estate plan is organised and executed well, it will not only be tax effective for the benefactor, but it can profoundly benefit loved ones financially. Yet, when an estate is mishandled, it holds the potential to cause rifts and tension between family members, along with emotional pain. Your wealth can also fall into the wrong hands. Estate planning does not need to be a difficult undertaking when the right advice is sought after and taken. A financial adviser and estate planner will work with you to verify your assets are distributed in the way you intend and be tax effective too.

Having A Will Is Essential

Have you got an updated will in place? Time to take control of your financial legacy.

When discussing estate planning, priority needs to be placed on having your will organised and up to date. A will shows how your assets are distributed after you die. Without a will, the State dictates where your assets will go and could go to someone you would never intend it to be for.

Considering a will is a simple and relatively inexpensive process, it’s stunning to discover that over 50% of Australians will pass away not having one in place. Having your will drafted up and worded correctly by a professional will avoid it being contested by anyone. Also have a copy of your will in a secure location, with another copy kept with your solicitor and executor, to ensure your vigilance is not all in vain when you die.

Passing On Wealth During Your Life

Gifting assets while alive can potentially avoid taxes if done right.

While a will is the first step in good estate planning, it may be worth considering distributing your wealth while still alive. It goes without saying that solid financial advice from an advisor specialising in estate planning is necessary when considering this strategy. It is important to give thought to your retirement needs while alive, including aged care expenses and lifestyle requirements before passing on wealth to your intended beneficiaries. Thought also needs to be given to the consequences regarding aged care pension and entitlements. Assets worth over $10,000 in a year or over $30,000 in five years are seen as your belongings, so once you transfer your wealth, you will need to be sure you can afford the effect on your Centrelink entitlements. Capital gains tax and stamp duty is also worth mentioning, as this may be a factor within a wealth transfer. It is important to make an appointment to see your accountant to discuss the possibilities and implications of a wealth transfer like this.

Keep The Conversation Open

Your legacy is precious, it is never too early to talk about it with the ones who will are intended to receive it.

One of the most effective things a benefactor can do is lay the foundations of a good financial education early, as well as have that conversation of the future of your wealth at an appropriate but early time in their life. Early conversations about wealth transfer and preservation mean that these gifts and transactions are handled smoothly when the time comes to pass on assets. Some may feel uneasy about speaking about personal finances in such an open way amongst family, however it creates an opportunity for family to openly speak their mind and for the benefactor to be able to voice their desires personally, when it comes to passing on their legacy. While money conversations may feel awkward at times, it cannot compare to the potential arguments and tension that may occur when wealth is handed out without warning. The conversation about testamentary trusts should be brought up, to ensure also that your children receive what’s rightfully theirs, and not ex-spouses after a potential marriage breakup.
A family legacy is a monumental responsibility, therefore intergenerational wealth transfer calls for a structured plan and open communication. Family values and history should be discussed amongst family, as well as other factors that will affect the preservation of family wealth. This may include investments and business dealings, philanthropy, understanding of necessary engagement and interaction and a solid understanding of the family’s asset base.

A Case Study – Avoiding Death Tax And Implementing Testamentary Trusts

This case study highlights the options available through intergenerational wealth transfer. Individual advice should be sought from your financial planner.

Mark is 75 and has been diagnosed with brain cancer and has been told he has about 6 months to live. Mark is recently divorced with three adult children, two sons James (45) and Ross (41) and a daughter Margaret (38). Margaret has a marriage which has been shaky in the past and Mark is concerned about the future of Margaret’s relationship and how this will affect her inheritance. Mark has a taxable component of $1M in his account-based pension worth $1.2M.

Mark has resolved that his remaining superannuation is passed down to his children, while avoiding “super death tax” of 15% plus Medicare levy which would be $170,000 based on his current taxable component. To avoid this tax, the funds would need to be taken from Mark’s super, however this stops the funds being asset protected, exposing them to being marginally taxed as an estate asset. There are various types of investments where funds remain asset protected. Beneficiaries can be nominated in this instance, avoiding the tax and probate process. A testamentary trust can be put in place for all beneficiaries to avoid future claims on inherited assets due to marriage breakdown. Seek financial advice should you wish to learn more about this scenario.

Tax Advice: Another Essential

Make your estate plan worthwhile. Get the right advice to avoid unnecessary taxes and pitfalls.

One of the most popular vehicles to transfer wealth is through your own super. Oftentimes individuals will die, leaving a large amount of super behind them. While that super balance may be passed on to their children as desired by the benefactor, the recipients may be faced with a death benefits tax of 15 percent, as well as a Medicare levy. This is usually because those children are usually of age and no longer seen as dependents by the State. This issue could easily be avoided if the super was taken out by the benefactor previous to death and gifted to the recipients within a will. Speak to a financial advisor however, as this strategy comes with implications. Withdrawing super brings it into a taxable environment, so this would need to be done within a specific timeframe to be worthwhile.

It is also worth considering whether real property within your estate will be a pre Capital Gains Tax asset or not. It is crucial to speak to a financial advisor and a solicitor when framing up your estate plan. There are several elements that need to be evaluated to ensure that every strategy that is carried out is effectual and worth doing.

There may be instances where a beneficiary is seen as ‘at risk’, where there may be ill health for example, or in an unstable marriage. Looking at each scenario within your family is important to ensure you structure your wealth transfer in a way that benefits your loved ones and preserves your legacy. Communicating with your family will help establish an understanding of the future of your wealth.

There are options to take advantage of such as the use of testamentary trusts or a binding nomination on your super, to ensure your wealth is protected and not lost on others who you didn’t intend it for.

Consider A Testamentary Trust To Protect The Future Of Your Wealth

A testamentary trust is a term usually used in the context of a discretionary family trust established under a will.
Testamentary trusts have the ability to protect assets and to potentially reduce tax paid by the beneficiaries from their inheritance – giving the recipient a greater level of flexibility and control over the administration of assets to beneficiaries.
Some benefits of a testamentary trust include:

  • CGT benefits
  • Income Tax advantages
  • Flexibility to the Trustee
  • Protection of assets
  • Protecting ’at risk’ beneficiaries (For e.g. mentally or physically disabled, drug addicted, gambling addicts etc.)

Testamentary trusts provide some protection to the assets held within the trust, including in the Family Law Court in the case of the divorce of a trust beneficiary and even against creditors of the recipients who may want to recover from the trust assets, money owing to them.

To speak to a financial adviser regarding the future of your family legacy, make an appointment today on 02 4038 1623.

The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author. Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.


Jose Hernandez

Jose Hernandez*

Jose Hernandez is a financial adviser. He believes that financial planning is the strong foundation on which Australians can build their future. Get in contact with Jose to discuss your financial goals 02 40381623.

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