According to the Intergenerational Report released earlier this year, $3.5 trillion will transfer from Baby Boomers to younger Australians in the next 20 years. That being so, it’s more important than ever to understand your wealth and how you want it to be managed once you’ve passed away.
In this, the first of two articles that deal with the giving and receiving of family wealth, we focus on the matters Australians need to consider when preparing their estate plan so they may properly brief their solicitor (and accountant) about their financial legacy.
Traditionally, Wills and estate planning has been the domain of solicitors. While solicitors certainly need to be involved in documenting how this important legal process needs to play out (as do accountants as there can be significant tax ramifications) the starting point is to establish a clear understanding of your financial position and clarify who gets what when you die.
While the sentimental allocation of your worldly goods is important, settling an estate is largely about the distribution of money and assets, and this requires considered and thoughtful advance planning.
Wealth transfer can be complex (and emotional) as there are often numerous relationships to navigate in alignment with legal and tax considerations that can affect the estate as well as your beneficiaries.
But before we get to what should be allocated to whom when you have passed, it’s of far greater importance to consider your wealth in context of how you wish to use it while you’re alive!
In our experience, clients’ views on wealth and the financial legacy they wish to leave can be surprising.
There are those who happily take “SKI holidays” (Spending Kids’ Inheritance) while others consciously deprive themselves of luxuries (even little ones) in fear of not having enough to support themselves as they age. There are also those who harbour deep feelings of guilt when spending their money as they struggle with a sense of financial obligation to their adult children.
As financial advisers we constantly blend our financial expertise with our empathy and understanding of human behaviour.
Decades advising clients from all walks of life has provided direct insight of how people feel and the circumstances they face. Fundamentally financial planning aims to make the most of money so it may be used to achieve what matters most.
For example, many retirees are currently accumulating surplus cash in their investment accounts. This is largely because the pandemic has put an end to travel which can account for considerable spending. Naturally, some retirees have re-purposed that money and have upgraded their motor vehicle and some have purchased or upgraded a caravan. Meanwhile others are renovating or improving their home, given they’re now spending a lot more time in it.
The point is, your retirement funds are yours to spend, and while you may wish to provide a financial legacy for others when you’re gone, it’s important not to lose sight of that.
As we have written in earlier articles, a current Will is important as it articulates your wishes. However, there are a number of financial matters that fall outside the authority of your Will, among them your superannuation and various assets including any business interests you may have.
The key aims of your estate plan will be to protect your assets from unwarranted claims and tax effectively manage and transfer them to your beneficiaries.
However, when it comes to the distribution of wealth, many families are not only concerned about fairness, they worry about whether their beneficiaries will use their inheritance wisely and if they understand the responsibilities that come with family money.
In fact, during 2019 Perpetual conducted a survey of 3000 private wealth clients and found that 60% of the respondents hoped their children “would use their inheritance wisely” while “58% hoped they would use it to invest in their future”.
Alarmingly, Perpetual also estimated 70% of families would lose their wealth by the second generation, and 90% will lost it by the third generation.
These are the important (and delicate) discussions we have with our clients. Our role is to advise on complex financial matters, but just as importantly, explore solutions and offer guidance for allocating money and assets to children, step-children and grandchildren and often siblings and philanthropic organisations or causes.
Once these financial and family matters are considered and a course of action decided, with our support, our clients have the clarity and confidence to properly brief their solicitor and accountant on their estate planning goals. Fully aware of financial circumstances and family relationships, both solicitor and accountant, are able to provide collaborated advice that efficiently and often more cost-effectively, delivers a seamless estate plan.
In our next article, we address the conversations parents and grandparents should be having with their offspring about the responsibilities of family money.
To find out more about achieving the retirement lifestyle of your choice, and how we can help to you make it happen, please contact Brett Cribb, Steve Nicholas or James Marshall on +61 (0)7 3007 2007 or email email@example.com.
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.