Alison Adams from Income Solutions
Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee
Sometimes financial advice is not about dollars and cents but instead becomes more about goals and objectives. As Financial Advisors, in the business of building wealth for our clients, we felt it was important to define “wealth” The concept sounds simple enough, and in many ways it is simple. We like to quote John C Bogle, the author of The little book of Common Sense Investing, “simple but not easy”. Often, the “not easy” part involves the goal of leaving a meaningful legacy to those whom you love. We find this is a common theme amongst our clients. It is one thing to invest for your own future but once you have successfully taken that journey, commonly thoughts turn to making sure your hard work benefits your children and grandchildren. So, what is needed? Successful estate planning takes an investment of time, careful consideration of your desired outcomes and the assistance of a quality Financial Advisor and specialist Estate Planning Lawyer. Did you know that your superannuation account balance and jointly held assets are not administered by your Will? For estate planning purposes, these types of financial assets are called “non estate assets”. For the majority of people, their superannuation account is likely to be one of their biggest assets. Another contender for biggest asset may be the family home, commonly jointly owned. In summary, the two assets often representing the bulk of an individual’s wealth may not be dealt with by their Will. What about if the bulk of your financial assets are deemed “estate assets” and in the event of your death, these assets will be distributed to your loved ones in accordance with your Will. That should set them up for a financially sound future, right? One of the biggest destroyers of wealth is the transfer of wealth from generation to generation. Consider your own family circumstances. Even if your family has so far been lucky enough to have escaped the statistics around relationship breakdowns, gambling or drug addiction, how do you know what the future holds for your children or even for your grandchildren? There are ways that a quality Will can provide a regular income stream to your loved ones and at the same time, protect their inheritance. David Ramsay, founder and Principal Financial Advisor at Income Solutions likes to say “you love your children and grandchildren; at best, you hope to like their partners”. Here’s some food for thought, consider these scenarios:
- Sadly your father passes away and in accordance with his Will, you and your brother inherit the family home. The home sits in prime real estate, with upcoming re-zoning changes making you and your brother think it’s a good idea to rent the house out for a couple of years and sell when all of the changes have passed, holding out for a bigger profit. It’s currently worth $1m, however you believe your strategy could triple that value. Your father had a very simple Will and the home passes to you and your brother, held jointly at 50% each (currently a $500,00 inheritance to each brother). Both you and your brother are married, with young children. 3 months later, you unfortunately pass away in a car accident. Your Will makes provisions for your wife and young family. Your wife meets with the lawyer and lists all of your assets, including the $500,000 share of the inherited family house. Her Lawyer tells her that unfortunately a jointly held asset is not governed by the Will, and by law, the surviving brother is now the sole owner of the inherited family home. Your wife and children have no legal claim over your share of the house.
- 6 years ago you met your second wife, married and now have 3 beautiful girls together. You believe that your family is complete; you have your 3 girls and also 2 sons from your first marriage. Your ex-wife lives nearby and, although you’ve had rough patches in the past, your 2 sons come and stay every other weekend and because you live nearby you are able to attend their various sporting and school events and enjoy a good relationship with them. The boys have a good relationship with their step sisters, however as they are entering their late teens, lately the relationship between your second wife and the boys is often strained. Your motto is that things will improve once they get through their teenage years. Unfortunately you have an industrial accident at work and pass away. You have a current Will which makes provisions for your current wife to inherit the majority of your assets, with smaller amounts distributed to all of your children. You’ve had discussions with your second wife about how you would like her look after all of your children, and upon her passing, distribute your assets evenly. These wishes were reflected in her Will, drafted at the same time you drafted your Will. Your second wife is advised that, following your death, her existing Will is invalid and she makes arrangements with her Lawyer to draft a new Will immediately. After all, she’s the only parent left for her girls. The new Will is drawn, making provisions for your 3 daughters but excluding any provisions for your 2 sons.
- You have worked hard and sacrificed through the years to build a sizeable investment portfolio. The portfolio derives enough income to support your lifestyle and consists of growth assets that should continue to support both your children and grandchildren when you pass. You have never been in the business of spending money “for the sake of it” and when you hear about DIY Will kits that you can purchase for $69.95 at the local newsagents, you go for it. After all, it’s pretty simple – you want your kids to inherit it, don’t touch it and live off the income, just as you have. When they pass, you want their Will to provide the same directions to their children. You’ve even sat all of your kids down and told them as much and they all agreed. You pass away a contented man, proud of your life’s achievements and the way you’ve provided for your family’s future. Only problem is:
- Daughter number 1 has a marriage breakdown 2 years after you pass away. She directly inherited your assets in her own name, meaning they formed part of the divorce settlement. Half of your inheritance has now been distributed to her ex-husband, who, truth be known, you never really liked anyway.
- Son number 2 has never been good at managing his money. Before you passed, you asked your other children to keep an eye on him, but they’re so busy with their own lives that they can’t keep track of him as well. A few ill advised investment decisions later and he’s lost at least 3/4 of his inheritance.
- Son number 3 is self employed and just prior to your passing, he ran one of the biggest engineering businesses in town (a great source of pride for you). Unfortunately the majority of his business involved supplying and servicing the machinery at 2 local car manufacturers. Since those manufacturers have closed down, he’s put on a brave face but in truth, new business has proved too hard to find and he’s just about to declare bankruptcy. The only thing that can save him is your inheritance but due to a quirk of bad timing, he is forced to use the inheritance to pay his debts and close his business. He’s not in debt, however he has no business and no inheritance.
These 3 scenarios are fictitious, however similar scenarios are happening each and every day. Sadly, they are preventable. Advice from a good quality Financial Advisor and specialist Estate Planning Lawyer would ensure sound investment strategies could accompany estate planning protections. The outcome being that the transfer of wealth through generations can successfully be achieved.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.