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.
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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.
Navigating the Executor’s Terrain
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.
Yet, the process isn’t without potential pitfalls:
- Executors face personal financial risks. Any oversight during the estate’s administration might lead to personal financial liabilities.
- They often encounter hitches in procuring superannuation death benefits and in coordinating with fund trustees.
- Executors bear responsibility for any losses stemming from estate asset mismanagement. This can include failure in securing and judiciously investing assets or lapses in notifying creditors, settling the deceased’s obligations, and recouping debts owed to the deceased.
- They can incur financial penalties for unduly delaying estate administration or for hasty distributions.
Guidance for a Smoother Transition
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 investment technique known as ethical investing prioritises the investor’s moral, religious and social ideals over financial gain. This is because a growing number of investors have begun to demand social responsibility from the companies they invest in, primarily because of the rise in dubious and unlawful investment arrangements.
In today’s society, the notion of wealth extends beyond financial resources. As individuals seek a more balanced and fulfilling life, the concept of wealth has evolved to encompass various factors such as education, healthcare, job satisfaction, and social connections. This article explores the changing perception of wealth in contemporary Australia and highlights the importance of holistic well-being in defining prosperity.
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.
Separating ownership using a trust
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.
Which trust is best?
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.
Advantages of a trust structure
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.
Building wealth outside super
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.
Trusts aren’t always the solution
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.
If you’re lucky enough to have received a windfall, perhaps an inheritance or a retrenchment payout, your first decision will be what to do with it.
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.
Choosing a trustee
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.
The pros and cons
Whether or not you should set up a testamentary trust in your will depends on your own circumstances.
The positives include:
- The ability to control the distribution of income
- The possibility of some tax advantages for your beneficiaries
- A level of protection for your assets from lawsuits, family breakdowns and business difficulties
- A way of keep a family’s wealth intact into the future
- Support for vulnerable beneficiaries such as those with special needs or lacking financial experience and minors
- Can be used by anyone with assets to distribute, whatever the size of their estate
On the other hand, there are a number of considerations to be aware of such as:
- The complex paperwork and reporting required
- The cost to establish the trust and keep it running
- The possibility of disputes among beneficiaries or with the trustee over the future of the trust, distributions, and its administration
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.
If you have an SMSF, it’s essential to get your fund is in good shape and ready for June 30 and the annual audit.
It’s particularly important this year, because the ATO is focussed on fixing a number of issues when it comes to SMSFs. These include high rates of non-lodgment and problematic related party loans by SMSF members operating small businesses.
Check your paperwork is up-to-date
Review all the administrative responsibilities of your SMSF to identify any incomplete ones. These include updating the fund’s minutes to record all decisions and actions taken during the year, lodging any required Transfer Balance Account Reports (TBARs), and documenting decisions about benefit payments and withdrawals.
Although it’s easy to forget, SMSFs are required to keep all contact details, banking details and electronic service address up-to-date with the ATO.
Make contributions and payments early
If you want a super contribution counted in the 2022–23 financial year, ensure the fund’s bank account receives payment by 30 June.
Minimum pension payments to members also need to be made by 30 June to meet the annual payment rules and ensure the income stream doesn’t cease for income tax purposes.
Ensure contribution administration is ready
If your SMSF receives tax-effective super contributions for salary sacrifice arrangements, ensure the fund has all the necessary paperwork before the arrangements commences.
Check you have appropriate evidence (and trust deed authority) to verify any downsizer contributions. From 1 January 2023, SMSF members aged 55 and over are eligible to make a downsizer contribution of up to $300,000 ($600,000 for a couple).
Lodge your annual return on time
Non-lodgment of the annual return is a major red flag for the ATO, particularly for new SMSFs.
Ensure your annual return is prepared and lodged on time to avoid coming under the tax man’s microscope for potential illegal early access or non-compliance.
Consider implications of new tax rules
The planned new tax on member balances over $3 million could create significant issues for some SMSF members, so trustees should review the potential implications ahead of EOFY.
Funds with large, lumpy assets such as business real property should consider the implications and liquidity issues of members implementing strategies designed to limit the impact of the new tax.
Value the fund’s assets
SMSF rules require all fund assets to be valued at market value at year-end, including investments in unlisted companies or trusts, cryptocurrency, and collectible assets. The ATO is monitoring this area, so trustees should organise appropriate valuations as soon as possible.
Ensure valuations can be substantiated if there are audit queries and the process is undertaken in line with valuation guidelines.
Reassess your investment strategy
Review the fund’s investment strategy to ensure it covers all relevant areas, including whether investment asset ranges remain relevant to your investment objectives. Deviations from strategic asset ranges must be documented, together with intended actions to address them.
Review your NALE
Non-arm’s length expenses (NALE) and income are key interest areas for the ATO, so check the fund complies with the rules.
Pay particular attention to all SMSF transactions involving related parties and ensure their arm’s length nature can be fully substantiated.
Get your auditor onboard
Trustees are required to appoint their auditor at least 45 days before lodgment due date, so ensure you have this organised.
Prepare for earlier TBAR reporting
From 1 July 2023, SMSFs will be required to report TBARs more frequently. All TBAR events will need to be submitted 28 days after the quarter in which the event occurred, so ensure you have systems in place to meet the new requirement.
All TBAR events occurring in 2022-23 will need to be reported by 28 October 2023.
Ensure trustees have a director ID
SMSF with a corporate structure must ensure all trustees have a director ID number. Although this was a requirement from 1 November 2022, many SMSF trustees are yet to apply.
Holding a director ID is an essential part of the SMSF registration process and directors must apply via the Australian Business Registry Services website.
If you would like to discuss EOFY tasks for your SMSF or your personal super contributions, reach out to the Sherlock Wealth 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.
By Andrew Sherlock, Head of Advice, Sherlock Wealth
If you are wanting to maximise your superannuation contributions, it is important to get this done before the end of the financial year.
What are the best ways to boost your retirement savings?
- Contribute a portion of your before-tax income to your super account. When you make a voluntary personal contribution, you may even be able to claim it as a tax deduction.
- Make a carry-forward contribution. This can be done if you have any unused concessional contribution amounts from previous financial years and your super balance is less than $500,000. This is a great way to offset your income if you have higher-than-usual earnings in the year.
- Arrange tax-effective contributions through salary sacrifice. The Australian Taxation Office requires these arrangements to be documented prior to commencement, so if this is something you are interested in, ensure you take the time to discuss it with your employer.
- Make non-concessional super contributions. If you have spare cash, have received an inheritance or have additional personal savings but have reached your concessional contributions limit, voluntary non-concessional contributions can be a good solution.
- Downsizer contributions are another option if you’re aged 55 and over and plan to sell your home. You can contribute up to $300,000($600,000 for a couple) from your sale proceeds.
- You can also make a contribution into your low-income spouse’s super account, which could provide you with a tax offset.
What are non-concessional super contributions?
Non-concessional super contributions are payments to your super from your savings or from income you have already paid tax on. These are not taxed when they are received by your super fund. Although you cannot claim a tax deduction for non-concessional contributions, they can be a great way to get money into the lower taxed super system.
How does this reduce my tax bill?
Making extra contributions before the end of the financial year can give your retirement savings a healthy boost, but it also has potential to reduce your tax bill.
- Concessional contributions are taxed at only 15 percent, which for most people is lower than their marginal tax rate. In this case, you benefit by paying less tax compared to receiving the money as normal income.
- If you earn more than $250,000, you may be required to pay additional tax under the Division 293 tax rules.
- Some voluntary personal contributions may also provide a tax deduction, while the investment returns you earn on your super are only taxed at 15 percent.
Watch your annual contribution limit
It’s important to check where you stand with your annual contribution caps. These are the limits on how much you can add to your super account each year. If you exceed them, you will pay extra tax.
- For concessional contributions, the current annual cap is $27,500 and this applies to everyone.
- When it comes to non-concessional contributions, for most people under the age of 75 the annual limit is $110,000. Your personal cap may be different, particularly if you already have a large amount in super, so it’s a good idea to talk to your adviser before contributing.
- There may be an opportunity to bring forward up to three years of your non-concessional caps so you can contribute up to $330,000 before the EOFY.
As always, we’re here to help. If you have any questions or would like to discuss EOFY super strategies or your eligibility to make contributions, please don’t hesitate to reach out to us 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 a holiday home can become your own piece of paradise and create many happy memories, organising how to finance it takes preparation.
