Tag Archives: Superannuation

The A-Z of Inheritance

By Robert Wright /February 18,2021/

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.

For many people inheritance is painful and protracted. It can lead to family disputes and disappointment. In this article, we look at both the financial and emotional aspects of inheritance and at how some forethought can make the process easier for everyone.

The Process: Leaving a Paper Trail

Moving wealth from one generation to the next does not happen quickly. Let’s think about why that is and why some intelligent forward planning is required. 

Consider your own finances – all the bank and investment accounts, loans, credit cards, tax, super and insurances that make up your financial life. Think of all the documents, passwords, websites and email chains they create. Then hand them to someone who isn’t financially trained and hasn’t dealt with them every day like you have. Hand them to someone who’s emotionally drained by your passing – and then has to deal with the whole series of complex legal processes we outline below.

Get a grip on assets and liabilities

Before any inheritance gets distributed, the executor (the person you’ve appointed in your will to administer your estate) needs a deep and documented understanding of your financial position; what you own and what you owe. It’s complex and detailed work, but it needs to be done so a Statement of Assets and Liabilities can be submitted to the Supreme Court.

Probate – all about a valid will

After the assets and liabilities have been accounted for, the executor of your will needs to apply for Probate. The word tells its own story – it comes from the Latin probare: “to prove”.

It means a Court must certify that the will they’re working with is the valid one. Usually, the executor needs to advertise their intention to apply for probate in a newspaper or via the court website. They also need to give creditors time to lodge a claim against the estate.

Death and Taxes

Once Probate has been granted your executor must make sure outstanding taxes are paid and a date of death tax return and other tax returns are lodged. They also need to work through any other tax complexities, including family trusts, to ensure assets are passed on in compliance with tax law.

This is one area where a financial adviser or accountant – or both – can be invaluable. If you’re preparing your estate plan, their help can make sure you pass on assets to those you care about in the most-tax-effective fashion.

And if you’re receiving an inheritance, expert financial advice can help you manage the tax decisions more effectively.

Tax management is important. Australia doesn’t have death duties and most assets you inherit don’t get captured by Capital Gain Tax (CGT) when they transfer into your ownership. But CGT does apply when you sell those assets or, potentially, if you inherit residential property that has been used for investment purposes. Expert advice can help you manage these complexities.

Rings passed down for generations

Unless a claim is lodged against the estate (and it can’t be paid or negotiated away) the next step is for cash legacies, bequests and personal items – including jewellery – to be distributed. Individuals often use their will to make bequests to charitable organisations – these are identified and treated separately to the rest of the estate. 

Distributing the estate

Once all legacies and bequests have been managed correctly, the balance of the estate (typically large assets like property, equity in businesses and investment holdings like shares) are distributed in accordance with the will or subsequent directions from a court. Sometimes this is not a final process – particularly if there are minor children involved. In these situations, the administration of the estate can be ongoing (which adds to complexity and costs).

As you can see, taking an inheritance from the reading of the will to the distribution of assets has already involved accounting, advertising and two layers of Court documentation. This all takes time – and that’s assuming there are no family disputes or arguments with the tax man or the deceased’s creditors.

The Emotions

We mentioned managing the process. Now we need to talk about managing your emotions. If all parties do that – the person leaving the inheritance and the person receiving it – the result can be better for all concerned. So, let’s look at the emotions involved in leaving an inheritance and the paths they can take us down.

Grief

In the aftermath of a loved one’s death, it can be hard to manage complex tasks, particularly if those tasks stir more emotion – like family disputes. Preparing for that challenge – perhaps by ensuring the executor has some financial skills, or is trusted by all parties, or is independent – can reduce the stresses placed on a grieving family.

Impatience

A simple look at the list above explains why patience is required in an inheritance situation. Understanding the probable time frame – which can vary depending on the complexity of the estate, but can often be a minimum of 12 months before an estate is settled – can make all the difference.

As we saw earlier, good advice can be crucial to setting up an estate plan that provides the maximum benefit for those you leave behind. It can be just as useful for the inheritors of an estate.

Reticence

According to research by Perpetual, some 53% of parents have not discussed their will and legacy with their children. More striking still, 80% of Australians who believe they will inherit something haven’t discussed that inheritance with their parents.

That lack of communication is at the heart of many fraught inheritance experiences. But to ensure that the transfer of wealth from one generation to the next happens with the minimum of complexity, cost and angst, all those involved need to be clear about their intentions – and their feelings.

Source: Perpetual

Get your affairs sorted with an estate plan

By Robert Wright /February 04,2021/

It’s an uncomfortable truth, knowing that one day we will pass away. No-one likes to think about the distress it will cause their loved ones or what kind of burden they’ll be left with. That’s why death is often considered a taboo topic of conversation, along with money and politics.

When you pass away, hospitals and funeral directors will ask a lot of questions that your family may not have the answers to. If you’re prepared and organised, you can provide them with many of the answers in advance. We know sharing your funeral wishes and end-of-life admin with your family isn’t the most uplifting topic of conversation. But it can make the process of passing away far less stressful to the ones you leave behind.

Six ways to get organised

Getting organised early can eliminate some of the difficult conversations your family may have to deal with later. Here are six things you can do now:

Have a Will and ensure it’s up to date. Surprisingly, just over half of Australians don’t have a Will.

• Consider an Advance Care Directive. It’s a way to say what healthcare treatments you would like to have or refuse if you’re ever in a position where you’re seriously ill and unable to make decisions about your treatment.
• If aligned with your wishes, join the organ donor register.
• Check that the beneficiaries nominated in your super and insurance are still current.
• Keep the records for all your bank accounts, investments, and assets in one place so it’s easier for someone to sort through them and find relevant information.
• Put easy-to-access money aside to pay for your funeral or buy a funeral bond, since it takes a long time to process your estate. Funerals are estimated to cost between $4,000 and $15,000

Talking to specialists

Sometimes extra planning and financial advice is needed to ensure that your assets are passed into the right hands in the most efficient and tax-effective way.

It’s important that your Will is clear, complete and not open to legal challenge. Estate planning advice may be required in cases of divorce, remarriage and blended families to protect the interests of vulnerable family members and to ensure that your wishes are carried out.

Talk to your financial adviser about these things. They can also suggest anything you may not have thought of.

Getting the conversation going

Sharing your preferences provides those you leave behind with the comfort and certainty of knowing they are carrying out your wishes. It might make for an awkward conversation, but it’s better to discuss things over a family dinner than in an emergency room.

Here are a few topics you might want to discuss:

• Who do you want to be the guardian of your children?
• Who will take care of your pets?
• If you have an extended stay in hospital, do you have a preference about which hospital you want to go to?
• What type of funeral do you want? Would you prefer a cremation or a burial? Do you have any preferences for the venue, flowers, music or readings?
• What are your preferences for your valuable or significant belongings?

Source: Colonial First State

How to start saving for your future in your 20s

By Robert Wright /December 04,2020/

If you’re in your 20s, chances are that life could feel like a bit of a rollercoaster right now. The economic fallout of the coronavirus (COVID-19) may have knocked your personal finances for six and at the same time, you could be juggling new expenses and experiences for the first time, such as moving out of home and starting your first full-time job. Learning to juggle competing financial priorities and save for the future is essential.

While these lessons may be confronting at the moment, they can also teach valuable skills that your future self will thank you for. If you do things right in your 20s, you can lay the foundations for a solid financial future and set yourself up for life. Here’s how to put some sound plans in place to give yourself more choices about how you live your life in the years ahead. 

Get budgeting

It might seem obvious but getting in the habit of budgeting when you’re young is one of the best ways to boost your future financial wellbeing. 

Start by tracking what money you have coming in (your income) and going out (your expenses). It’s important to understand where your money is going and what proportion you’re spending on essentials, like rent, food and utilities, and non-essentials, like entertainment and clothes.

Practise mindful spending 

No matter what your financial situation is at the moment, this is an ideal time to learn savvy spending techniques. Practising mindful spending is an easy way to ‘trick yourself’ into saving money. And when you do need to buy a big-ticket item, do your research, shop around and where possible, look out for seasonal sales to help stretch your hard-earned dollars further. 

Compound your interest

When you’re in your 20s, your budget is usually pretty tight and there are plenty of other demands on your income. But if you can spare a few dollars from your pay, it can make a big difference later on. 

By starting to save in your 20s, you have a great opportunity to maximise the growth potential of compound interest. This means that you not only earn interest on whatever funds you deposit into your savings account, but you also earn interest on that interest. It’s extra money – without the extra effort. 

For example, if you begin with $100 in an account earning 2% interest a month, and deposit just $10 into the account every month, in 10 years you’ll have $1,449 in the account – $149 of that pure interest. If you keep doing that for your entire career, say 50 years, when you retire, you’ll have $10,568. Of that, $4,468 – almost half – is pure interest.

Watch your super grow

Once you earn over $450 a month, superannuation is compulsory in Australia for most employees, which typically means you’re in the fortunate position of being able to start planning for your retirement as soon as you get your first job – whether full-time, part-time or casual. 

So, rather than thinking of super as a burden, think of it as an easy way to save for retirement in your 20s. It can be tax effective and harnesses the benefits of compound savings.

If you withdrew your super early 

If you’ve been affected financially by the coronavirus (COVID-19), you may have withdrawn some of your super early, under the government’s early super access scheme.

While it might have helped in the short term, it’s important to consider the long-term implications of withdrawing any money from your super. Just as compound interest works to grow your retirement savings over time, the reverse is also true, and any money that was withdrawn this year could be worth much more by the time you’re ready to retire.

If you did withdraw some of your super early, think about whether you can commit to a plan for paying it back, once you’re back on your feet. You can do this by making personal contributions to your super. 

Ditch personal loans and credit card debt

Falling into credit card debt at an early age can quickly spiral into an unhealthy financial future.  If you do have any spare cash at the moment, it may be a good idea to prioritise debt repayments.

Write down all the money you owe, then rank each debt in terms of the interest rate on the amount. Payday loans and credit cards generally have higher interest rates, so you should prioritise paying them off first. 

Learn to invest wisely

While you’re in your 20s, retirement isn’t just around the corner, which means you have more flexibility with your finances than someone in their 60s who may be planning to leave the workforce in a few years.

With fewer financial responsibilities, you may be in a position to take a few more risks with your investments – the thinking being that if things don’t work out, you have time to fix them. 

Start early and consider talking to a financial adviser about choosing a mix of investments that will bring you gains you feel comfortable with, given your financial investment style.

Source: AMP

Why it’s important to think about insurance ahead of retirement

By Robert Wright /November 18,2020/

If retirement’s coming up on your horizon, you’ll be keen to make sure your plans stay on track. It makes sense to concentrate on things you can control, such as insurance.

Too-high premiums can chew away at the foundations of your savings, at a time when they’re more important than ever. Under-insure and one day your floor may collapse, undone by events you can’t foresee.

Cover for a changing life

As you get close to retirement, you may want to make sure you’re holding the right insurance for the lifestyle you want. Here’s a simple checklist that may help:

• Ask yourself how much money your family would have if you were to pass away or become disabled.
• Compare that with how much money your family might need in the same situation, including how they’d manage paying for day-to-day costs like child-care and mortgages.
• The difference between the two can help you work out how much insurance you may need.

Many of us take out insurance and are done with it – it’s enough to know we have the proverbial rainy day covered off. However, with economic clouds gathering, now’s a good time to review what you’ve already got and assess if it’s still right for you and your needs.

So, dig out your existing insurance agreements, taking special note of when they’re due to expire and your continued eligibility for the policies they hold.

An important area for many Australians is insurance held inside superannuation.

Insurance inside super

Insurance inside super can help us out when we really need it. Like any type of insurance, it works best when you’ve got the right level of protection for your situation. As you head towards retirement and your life changes, so might your priorities.

As well as life insurance, you might have total and permanent disablement (TPD) inside super. TPD cover may provide you with a lump-sum payment if you suffer a disability that prevents you from ever working again.

TPD could help you pay for ongoing medical expenses, alterations to your home to make day-to-day life easier and help provide future financial stability.

Total salary continuance, also known as income protection, is designed to pay a monthly benefit of up to 75% of your pre-disability regular income if you’re unable to work due to injury or illness.

Typically, within super, income protection provides you with cover either for a two-year or five-year period or until you turn 65, depending on the terms in your employer plan.

What to look out for

There are pros and cons of insurance within super. Things to think about if you’re approaching retirement include:

• Cover through super may end when you reach a certain age (usually 65 or 70). That’s generally different to cover that’s outside a super account.
• Taxes may be applied to TPD benefits depending on your age.
• Claim payments may take longer, as the money is normally paid by the insurer to the trustee of the super fund before it’s paid to you or your dependants.

Don’t double up and stay flexible

As part of your review, it’s also a good idea to check insurance you hold inside super against other policies you might have outside super.

Then compare your cover, check whether you have any insurance double ups – if you have more than one super account with the same type of insurance, you may be paying for more insurance than you need.

As well as comparing the level of cover you get, consider any exclusions, such as the treatment of any pre-existing medical conditions, and waiting periods. Remember that if you do cancel your insurance, you might lose access to features and benefits and may not be able to sign back up at the same rate.

It’s also important to disclose your situation to your insurer honestly. Otherwise, the insurer may be entitled to refuse your claim.

Any change calls for flexible thinking, whatever age you are. The lead up to retirement is a great time to review your insurance and adapt to changing circumstances.

Source: AMP