With the New Year now here, it’s crucial to shift our focus towards estate planning. Often underestimated, this financial aspect tends to take a backseat in the lives of many Australians. It’s perceived as a task for the distant future or something that can be postponed indefinitely.
Many people assume there is no tax payable on super benefits received after someone passes away, but that’s not always the case.
Being named the executor of an estate is both an honour and a burden. Entrusted with this pivotal role, one carries out the last wishes of a loved one, but the path is often strewn with complexities and unforeseen challenges.
At first glance, the executor’s role might seem straightforward. However, in practice, it’s a demanding role that requires interaction with a myriad of entities, such as banks, real estate professionals, utility companies, the deceased’s superannuation fund, and the taxation office.
Furthermore, an executor’s duties are vast and varied. They encompass everything from overseeing funeral procedures, securing the death certificate, and notifying friends and family about the loss. They’re also tasked with locating the will, identifying beneficiaries, gathering a multitude of documents, settling estate debts, documenting estate assets, and initiating insurance and superannuation claims.
For those in the process of drafting a will and designating an executor, a few proactive steps can immensely assist in the estate’s efficient management:
Collaborate with a knowledgeable probate lawyer or solicitor specialising in wills and estate management. Their insights can be invaluable, especially regarding local family and inheritance laws.
Given life’s unpredictability, regular updates to your will, insurance policies, and superannuation death benefit details are paramount.
It’s crucial to note that superannuation doesn’t fall within your estate and isn’t addressed in your will. Still, you can specify your wishes and arrangements concerning your super death benefit nominations in your will.
Seek guidance from your financial adviser and super fund to establish death nominations, thereby streamlining benefit acquisitions for beneficiaries.
If feasible, contemplate liquidating your entire death benefit from the super fund while still alive. This proactive step allows for immediate distribution based on your directives or deposits into a bank account, providing easy access for the executor upon your passing.
If you’re ever nominated as an executor by a loved one, it’s prudent to discuss these considerations with the person who drafted the will (the Testator). Collaboration with their legal advisor (and financial consultant if available is also advisable to ensure a comprehensive understanding of the responsibilities and challenges ahead.
The role of an executor is multifaceted, rife with both honour and intricate challenges. However, with a well-charted roadmap and diligent preparation, the process can be streamlined, ensuring a smoother transition for all involved.
This can be a complex discussion and should be undertaken with a trusted advice professional. Reach out to the Sherlock Wealth team here to get started.
Source: Matrix Planning Solutions
This information does not take into account the objectives, financial situation or needs of any person. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.
The complexity of farm succession planning extends beyond mere financial transactions. For farm owners, navigating the transition of a generational asset such as a farm is both an economic and emotional endeavour. The process often grapples with uneven asset distribution, potentially leading to family strife if not managed well.
A typical farm usually constitutes the lion’s share of a farming family’s assets. However, the farm’s income is often adequate to sustain just one family. Consequently, when the time comes to hand down the farm, usually, one child becomes the inheritor.
Life is unpredictable, and the untimely demise of a parent can throw succession plans into disarray. Here, life insurance can serve as a financial cushion, providing immediate liquidity to manage an unplanned succession.
What sustains the parents after they step back? Ideally, they would live on the off-farm assets accumulated over the years. However, the reality is often a mix of income streams, such as leasing arrangements and continued payments from the farm. This is not always convenient for the next generation, who may prefer to invest in the farm rather than pay their retired parents. Moreover, assuming ownership may require the new generation to shoulder existing debts and potentially accrue new ones to buy out their parents.
Farm succession planning is more than just a financial transaction; it is an emotional and familial journey that requires collective decision-making. Initiating the process early and involving all family members can alleviate potential pitfalls. A balanced approach can help navigate the complexities and ensure the farm remains a generational asset while still considering the needs and feelings of every family member.
Reach out to our experienced advice professionals to discuss your unique situation here.
Source: Matrix Planning Solutions
This information does not take into account the objectives, financial situation or needs of any person. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.
Ensuring you’ve structured your finances tax-effectively is always a concern, but with new tax rules for super on the horizon, many people with large balances are considering alternative vehicles to save for retirement.
Unsurprisingly, this has sparked a renewed interest in an old favourite – trusts.
Trusts have always been popular in Australia, with the government’s Tax Avoidance Taskforce (Trusts) estimating more than one million were in place in 2022.
The popularity of trusts for business, investment and estate planning purposes is due to both their flexibility and inherent benefits, particularly when it comes to managing your tax affairs.
At their heart, trusts are simply a formal relationship where a legal entity holds property or assets on behalf of another legal entity.
This separation means the trustee legally owns the assets, but the beneficiaries of the trust (such as family members) receive the income flowing from the assets.
A common example of a trust structure is a self managed super fund (SMSF), where the fund trustee is the legal owner of the fund’s assets, and the members receive investment returns earned on assets held within the SMSF trust.
There are many different types of trusts, with the appropriate structure depending on the financial goals you’re trying to achieve.
For small businesses and families, the most common trust is a discretionary (or family) trust. These vehicles are very flexible and can be used with immediate and extended family members, family companies or even charities.
In a discretionary trust, the trustee has absolute discretion on how both the income and capital of the trust are distributed to various beneficiaries.
This gives the trustee a great deal of flexibility when it comes time to allocate income to family members paying different marginal tax rates.
Discretionary trusts offer tax, asset protection, estate planning and property holding benefits.
They can also assist with the accumulation of assets for younger generations within your family and provide opportunities for the discounting of capital gains.
For small businesses and farming operations, a discretionary trust can be used to provide valuable asset protection. If your business goes bankrupt or a beneficiary is divorced, creditors will be unable to access assets or property held within the trust as it is the legal owner of the assets.
With new tax rules for super fund balances over $3 million being introduced, trusts also provide a useful tool to consider for continued wealth accumulation.
Unlike super funds, trusts don’t have annual contribution limits, restrictions on where you can invest or borrowing limits. Money can be added and removed from the trust as necessary, providing significant financial flexibility.
Discretionary trusts can also be used with vulnerable beneficiaries who may make unwise spending decisions. The trustee can decide to provide a spendthrift child or a family member with a gambling addiction regular income, but not large capital sums.
Holding ownership of assets within a trust is useful for estate management, as the assets will not be part of a deceased estate, avoiding the possibility of a Will being challenged.
Although trust structures provide many benefits, there are also tax issues that need to be considered. For example, any trust income not distributed to beneficiaries is taxed at the top marginal rate.
Distributions to minor children are taxed at higher rates and a trust is unable to allocate tax losses to beneficiaries, so they must remain within the trust and be carried forward.
Trusts can be expensive to set up, administer and dissolve when they are no longer needed and the trustee’s actions are restricted by the terms of the trust deed.
If a family dispute arises, running a trust can become difficult and making changes once it is established isn’t easy.
If you would like to find out more about trusts and whether one is appropriate for your business or family, reach out to our experienced advice team here.
Andrew Sherlock is the Owner & Head of Advice at Sherlock Wealth.
A Sydney-based financial planning firm, Sherlock Wealth has been helping successful families, business owners and individuals with their wealth creation and wealth protection needs for more than two generations.
A Chartered Accountant with a background in funds management, Andrew’s career spans more than 30 years. Andrew was one of the first people in Australia to obtain the Self-Managed Superannuation Specialist accreditation and is one of only a few advisers in Australia to be a Certified Investment Management Analyst. He is a lifetime member of the international MDRT Top of the Table and holds a BA Economics degree from Macquarie University with majors in accounting and finance.
Helping clients achieve their lifestyle goals through smart investing and asset management, wealth structures, and strategic planning are the cornerstones of what Andrew and the team at Sherlock Wealth provide.
Andrew can also be contacted at ask@sherlockwealth.com.
While the escalating cost of living commands immediate attention as individuals grapple with mounting expenses, our shared wealth is steadily expanding, progressively transferring to the next generation at an accelerated pace.
In fact, the value of inheritances as well as gifts to family and friends, has doubled over the past two decades.i
A 2021 Productivity Commission report found that $120 billion was passed on in 2018 and that amount is expected to grow fourfold between now and 2050. In 2018, the value of the average inheritance was $125,000 while gifts averaged $8000 each.
So, there is a lot at stake and it means that estate planning – a strategy for dealing with your assets after you die – is vital to help fulfil your wishes and protect the interests of the people you care about.
One powerful tool in planning your estate is a testamentary trust, which only comes into effect after your death. It operates in a similar way to a discretionary family trust and your Will acts as the trust deed, providing instructions for the trust.
It allows you to control the distribution of your assets and provides a way of managing any tax implications for your beneficiaries. Testamentary trusts are often used to protect assets from unforeseen circumstances such as lawsuits, creditors and divorces and they can help to preserve a family’s wealth.
A testamentary trust can be useful for those with blended family relationships and children with complex needs. For example, a child with a disability who is unable to manage their own investments can be supported by the use of a trust. Testamentary trusts may also help to provide some certainty for parents that their young children will be provided for. They are also often used by philanthropists as a way of providing a legacy for a cause they support.
If you are setting up a testamentary trust, you will need to appoint one or more trustees who will manage administration and distributions.
The trustee could be a family member (who may also be a beneficiary) or the role could be handed to an independent person or organisation.
Trustees should understand the tax situation of each of the beneficiaries to ensure that the timing and amount of distributions don’t inadvertently cause difficulties for them. Trustees must also lodge a tax return every year and maintain trust accounts and records.
As the ATO points out, for the trust to operate effectively, a high level of co-operation between family members may be important so that tax, financial and other information is shared.
Whether or not you should set up a testamentary trust in your will depends on your own circumstances.
The positives include:
On the other hand, there are a number of considerations to be aware of such as:
Testamentary trusts are a valuable strategy to help ensure your wishes are followed. They can shape your legacy, provide fairly for your loved ones and protect assets.
Reach out to our team here to discuss more about establishing a testamentary trust and to see whether it is suitable for you.
Andrew Sherlock is the Owner & Head of Advice at Sherlock Wealth.
A Sydney-based financial planning firm, Sherlock Wealth has been helping successful families, business owners and individuals with their wealth creation and wealth protection needs for more than two generations.
A Chartered Accountant with a background in funds management, Andrew’s career spans more than 30 years. Andrew was one of the first people in Australia to obtain the Self-Managed Superannuation Specialist accreditation and is one of only a few advisers in Australia to be a Certified Investment Management Analyst. He is a lifetime member of the international MDRT Top of the Table and holds a BA Economics degree from Macquarie University with majors in accounting and finance.
Helping clients achieve their lifestyle goals through smart investing and asset management, wealth structures, and strategic planning are the cornerstones of what Andrew and the team at Sherlock Wealth provide.
Andrew can also be contacted at ask@sherlockwealth.com.
A good estate plan will help make sure your wishes are carried out when you die. It can also help if you become unable to make your own decisions.
Australia is on the brink of the nation’s biggest ever intergenerational wealth transfer. Yet estate or inheritance planning is rarely discussed by families. With baby boomers shifting into retirement, it’s important to start the conversation now about your legacy and the people it may impact.
Legislation has come into effect allowing a maximum of six members in an SMSF. What does this mean for your SMSF, and will this make it easier when it comes time to pass your super on to the next generation?
Inheritance is an emotional subject on every level. The people leaving an inheritance generally do it with pride and love. The people receiving an inheritance often receive it with gratitude – and sorrow. But while emotional, it’s also a financial transfer that comes with a whole range of legal, financial planning and admin issues attached.
