Creating wealth can be a lifelong pursuit, so the last thing you want when you pass on that wealth is for it to be frittered away by a poorly planned will, unnecessary taxes, or misuse by beneficiaries. Fortunately, there are a host of actions you can take to protect your family wealth — but it takes some intentional and skilled planning to get it right.
Do you know what you have?
This might seem like a silly question, but do you have a complete idea of all your assets? Once you take stock of your property, possessions, investments, and financial assets, you may actually have a lot more than you first thought.
The first step to planning the protection of your estate is to document and value all your assets. Your legal and financial advisers can assist with this, and it will give them the basis they need to recommend how you can set up the most appropriate asset protection mechanisms.
A will is a start but not the end
A properly drafted will, based on sound legal advice, is an essential foundation for ensuring that your assets are retained and distributed according to your wishes. The absence of a will means that control will pass to an appointed administrator, which may see your money left in the wrong hands and could open up unwanted claims on your wealth. It may also cause delays with distribution and impose additional costs on your estate.
As essential as a will is, it is certainly not sufficient in itself to take care of all circumstances or to give you the level of control you may want to have. Other legal and financial instruments may be needed, so consult your respective advisers to see what might be appropriate for your situation.
Making sure your money is used wisely
While you may want to ensure that certain beneficiaries share in your estate, there is no guarantee that they will make wise or prudent choices about how their inheritance will be utilised. Age and personality can be factors which lead to poor choices and money wasted. There is also the potential for other relatives to hold undue influence over the beneficiaries, which may lead to your original intentions being distorted.
To avoid this, you can exercise some level of control using a legal vehicle known as a testamentary trust. This instrument can be set up in advance and is activated once you pass away. The trust can stipulate the way funds are distributed and spent, and can help protect your legacy against divorce, or bankruptcy claims made against your children. It can even minimise tax and provide direction over the way funds are invested.
Don’t forget your life cover and super
Your life insurance can end up forming a large part of your estate once any lump sum benefits are paid out. Rather than having these benefit paid into you estate for distribution via a will, you can choose to nominate beneficiaries on your policy directly. This enables funds to be paid out directly and quickly.
Superannuation is another often neglected area when it comes to planning asset distribution. Super death benefits need to have specific beneficiary nominations made and updated every three years. Failure to do this may mean benefits will initially be paid to the fund trustee, who then distributes at their discretion. A “binding nomination” ensures there is no ambiguity, so beneficiaries receive payment directly.
Again, a financial adviser can give expert advice on these aspects and can help streamline the way such large amounts of money reach the right hands.
Tax can be tricky
When it comes to tax, not all estate assets will be treated equally once they are in the hands of beneficiaries. Some asset types may attract capital gains tax, so it is important to get professional assessment and advice to avoid an unintended imbalance in asset distribution.
Taxation on superannuation benefits can also vary, depending on whether they are paid out as a lump sum or a pension, so make sure you get qualified advice on this, too.
Advice is key
The complexities of estate asset distribution make it essential to seek wise counsel as early as possible to avoid pitfalls, and to ensure fair and accurate results.
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This information was provided to the readers of WYZA courtesy of Bridges Financial Services Pty Ltd (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this information, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. Bridges is part of the IOOF group.