There’s been a lot of talk about the intergenerational wealth transfer as Australians, mostly Baby Boomers, retire over the next 20 years leaving significant financial legacies to their X and Y Gen offspring.
Coincidentally, or perhaps as a result of this forecast, there’s also been a change in traditional thinking as financially sound retirees show a growing interest in providing a ‘living legacy’ which gives inheritances with a ‘warm’ hand rather than the alternative. But, there are important matters you need to consider before you commit your life savings to others and these include being aware of any adverse or sensitive family undercurrents.
The advantage for those who receive a living legacy is the financial benefit that can be life changing, and for the giver, well…they’ll be present to experience it in action.
However, your decision to give money to family members at any stage of life needs to be well considered, and especially once you have retired.
In the first instance, your own financial position needs to be secure and that the money you intend to give is not necessary for maintaining your lifestyle or any unexpected health matters that may arise as you age. It’s also important to be aware that once you give, it may be difficult to take back if you find yourself strapped for cash in your later years.
We also appreciate families can be complex and there can be many matters, financial and emotional, that need to be navigated carefully and planned before you commit to giving your money away.
This can include matters of fairness between siblings or other family members who may have very different attitudes to money – one conservative and careful, another impetuous and reckless. In our experience, sometimes absolute financial fairness just isn’t possible.
There may also be matters relating to financial support now, and ongoing, for adult children who may have mental health, addictions or disabilities that may prevent them from making appropriate financial decisions for themselves.
In these situations, it’s common for Trusts to be established with a Trustee who manages their financial affairs in accordance with your wishes now and when you’ve passed away.
But perhaps the most common concern for retirees wanting to provide a living legacy for their adult children is the spectre of divorce.
For example, money given to pay for home deposits or perhaps to pay out a home loan entirely, along with investment accounts set up for grandchildren can all form part of the assets that can be considered as part of divorce proceedings.
Unfortunately, well intended retirees can find themselves in a situation where a substantial part of their life’s savings goes to an ex-spouse as part of a financial settlement rather than their own adult child and grandchildren, without any recourse.
However, there are important things you can do to safeguard your money and your wishes.
Firstly, any money loaned for property, business interests or any other matter, can be legally documented. It’s important to seek legal advice to ensure this is done properly.
Whether you intend to accept repayment of the loan or not, a legal document that clarifies your stake in the transaction and your claim on the property or other assets as security is crucial should a marriage or business partnership sour or any other circumstance causes financial default.
Similarly, many retirees wish to provide a financial legacy for their grandchildren.
Often it takes the form of paying school or university fees and/or setting up investment accounts for building a nest egg to provide a financial head start.
An option to consider in this instance is that tuition fees can easily be paid directly to the institution. This ensures your money is used for its purpose rather than paying it into the joint account of an unhappy marriage where it may, or may not, be used as you wish or it ends up as part of a divorce settlement.
When it comes to establishing investment accounts, the account can be held in your name in trust for your grandchild. Then later, usually when the grandchild becomes an adult, the account can be transferred into their name. In this way, your capital and the compounding interest earned from it, can be exempt from any divorce proceedings.
Providing a living legacy is a wonderful and rewarding experience for financially sound retirees, however as you’ve read here there are pitfalls even for the most well-intended.
If you are thinking of giving in this way, may we invite you to contact us to talk through your options for giving safely.
In our experience, an arm’s length professional opinion and sounding board should never be undervalued. It can both quell emotions that often include feelings of guilt and uncertainty, as different family circumstances often require different solutions, while providing a structured approach to achieving outcomes.
Importantly, before you give to others, it’s important to ensure you have your own financial affairs in order. This will include reviewing your Wills and Powers of Attorney if they are more than a few years old.
Implementing an estate plan and appropriate structures such as Trusts protect your assets from unwelcome claims and enable your estate to be managed according to your wishes.
Once you feel satisfied you are in a financial position to help others, we can help you to decide the amounts and to whom you wish to give, when and how you give it.
To find out more about your financial options, giving and estate planning, please contact Brett Cribb, Steve Nicholas or James Marshall on +61 (0)7 3007 2007, alternatively please email firstname.lastname@example.org, and let’s make it happen.
Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions