Wealth transfer is a family matter

Written on the 24 August 2016

It's often said that it is better to give with a warm heart, but divesting assets while you are alive may not be the best way to pass on your accumulated wealth to your nearest and dearest.

Certainly giving when you are alive means you have more control over who gets what and you get to see them enjoy their inheritance. It also means your wishes are less likely to be contested after you are gone. But for many reasons this is not always practical or possible.

None of us knows how long we will live so there is little point giving everything away only to have insufficient funds to pay for, say, aged care in your later years.

The best way to ensure that you and your family are properly cared for is to have a comprehensive estate plan. Talking about death and money is never easy, but having a conversation with your family about your wishes can help prevent disputes and disappointment after you have gone.

Where there's a Will

The most important thing is to make sure you have an up-to-date Will that truly reflects your current situation and your wishes. And make sure your family knows where your Will is kept. It's good to get financial advice as there may be many hurdles and unforeseen consequences.

Most estate planning issues centre on bequeathing assets evenly among family members and understanding the different tax implications for each asset. For instance, if one child gets the family home and the other the holiday home then the holiday home beneficiary may be liable for capital gains tax. CGT can also be an issue when it comes to passing on shares (i).

Asset protection is another area that requires careful planning. You may be worried about an adult child's inheritance being lost in a divorce settlement or through financial mismanagement, or you may have a disabled child who will need ongoing financial support. One way to protect your assets in such situations is to set up a family trust.

Conversely, you may decide that your adult children are already well established and don't need a large inheritance. With so many young people finding it hard to break into the housing market and repay student debt, you might consider bypassing your children and bequeathing your estate to your grandchildren.

A super strategy

Your Will is only part of the equation though. Many people don't realise that super is a non-estate asset unless you specifically direct it to your estate by nominating your legal personal representative as the beneficiary. (ii)

Super is one asset where giving with a warm heart can be a smart strategy in some circumstances, such as the diagnosis of a terminal illness, particularly if your beneficiaries are your adult children.

This is because children aged 18 or more are treated as non-dependent under tax law unless they are financially dependent on you (iii). So it is likely your adult children will be hit with a hefty tax bill on receipt of your super.

But if you're aged 60 or more, you can withdraw money from your super, even a day before you die, and you will not pay any tax as all withdrawals from that age are tax free. Then you can pass the money on tax-free to your non-tax dependent children.

Succession planning

If you have your own business or a farm, then you also need to consider succession planning. Do all or any of your children want to stay in the business? How will you compensate those who don't? Successful succession planning needs to start early so the next generation can plan their future with some certainty.

To make sure your wishes are carried out as intended, talk with your family and give us a call to discuss your estate planning needs.

i http://www.makdap.com.au/publications/cgt-consequences-will

ii http://www.schweizer.com.au/articles/Who_Gets_Your_Superannuation_When_You_Die_(SK00125438).pdf

iii ATO, https://www.ato.gov.au/individuals/super/super-and-tax/tax-on-benefits/#Taxondeathbenefits
https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/tax-and-super

The information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.
Whilst Arrow Focus on Wealth Pty Ltd is of the view the contents of this website is based on information which is believed to be reliable, its accuracy and completeness are not guaranteed and no warranty of accuracy or reliability is given or implied and no responsibility for any loss or damage arising in any way for any representation, act or omission is accepted by Arrow Focus on Wealth Pty Ltd or GPS Wealth Ltd or any officer, agent or employee of Arrow Focus on Wealth Pty Ltd or GPS Wealth Ltd.

Bookmark SiteTell a FriendPrint