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Estate planning is an essential yet often overlooked aspect of financial planning. For many Australians, it is seen as something to be dealt with later in life, if at all.
Estate planning is an essential yet often overlooked aspect of financial planning. For many Australians, it is seen as something to be dealt with later in life, if at all.
Life insurance is often perceived as a rather morbid necessity—an acknowledgment of mortality that many prefer to defer.
Australians can probably consider themselves fortunate. Compared to other nations, Australia’s social security, healthcare services, and living standards are quite competitive.
The Great Wealth transfer is underway, with around $3.5 trillion expected to be passed on during the next 30 years in Australia and women are set to be the major beneficiaries of this transfer.1https://www.moneymag.com.au/why-women-will-lead-the-intergenerational-wealth-transfer
Still expected to live longer than men, women may inherit three times in their lifetime – from parents, parents-in-law and husbands, meaning they have an 80 percent chance of being in sole control of their family’s finances at some point in their lives.2 https://www.afr.com/wealth/personal-finance/baby-boomers-and-their-families-ill-prepared-for-big-wealth-transfer-20231002-p5e95w
This is fantastic news for financial gender equality. Becoming the director of family wealth can be empowering provided women have the resources and confidence to make good financial decisions.
A survey by Household, Income and Labour Dynamics in Australia (HILDA) in 2021 found that financial literacy scores had declined for both men and women since their previous survey in 2016, with women scoring lower than men in all age groups in both cases.3https://www.afr.com/wealth/personal-finance/most-australians-can-t-answer-all-of-these-five-basic-money-questions-20221130-p5c2kv
Women were also found to be more likely to opt out of receiving financial advice after the death or divorce of a partner – a time where making informed financial decisions is crucial.4https://www.afr.com/wealth/personal-finance/baby-boomers-and-their-families-ill-prepared-for-big-wealth-transfer-20231002-p5e95w
Over the past decade, the team and I have worked hard to encourage greater engagement from women in their financial affairs and we are pleased to see increasing numbers becoming more actively involved. More women are attending meetings, asking questions, owning the relationship with us, taking on the role of family CFO and playing an active role in decision making.
While this is a promising shift, there is still a large gap in financial knowledge and wellbeing between men and women.5https://www.anz.com.au/content/dam/anzcomau/documents/pdf/aboutus/esg/financial-wellbeing/financial-wellbeing-australian-women-report-march-2023.pdf?mboxid=session%235f1cc59f3f9b4c138642a9abd10dd8eb%231710111128%7CPC%235f1cc59f3f9b4c138642a9abd10dd8eb.36_0%231773354068&adobe_mc=MCMID%3D64954702081314620664266727136715856507%7CMCORGID%3D67A216D751E567B20A490D4C%2540AdobeOrg%7CTS%3D1710109268
As with every client relationship, we find the crucial first step involves active engagement in the advice process. It is essential that women follow the same approach and lean into the process themselves in order to cultivate confidence and readiness for the Great Wealth Transfer.
Here are some key things that can help you become engaged with your personal and family finances. Remember, knowledge is power.
With such a large transfer of wealth headed our way, it is crucial that we overcome these barriers and prepare ourselves for the responsibilities that come with the ownership of family wealth.
View Jacqui’s website profile here or connect with her on LinkedIn here.
To have the impact we intend for our clients, as a team, we must continuously work on ways to manage our time effectively. I frequently engage with our team, discussing strategies to elevate our collaborative efforts while prioritising our client’s time. These principles are not limited to the workplace but can be seamlessly integrated into our daily lives, fostering a deep respect for both our time and that of our clients. I trust that this article has offered valuable insights on how you can optimise your time management each day.
Jacqui Sherlock – CEO
Retirement is a period most people eagerly anticipate. It’s that wonderful stage of life when you can finally unwind and spend your time as you please. You can even spend retirement focusing on the businesses you’ve been planning and have put off for so long.
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.
Like any other insurance policy, life insurance has many variations to meet different users’ needs. Thus, before choosing one, you must determine what you need in a life insurance policy.
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.
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.