Approaching 50? It’s time to think about your inheritance

They may be in denial, but it’s time for Gen X to join the Baby Boomers in planning for retirement and, beyond that, for both Boomers and X-ers to be thinking about optimal wealth transfer to the next generation.

The next decade will see the retirement of most of Australia’s remaining Boomers as well as the older cohort of Gen X. This means a massive intergenerational wealth transfer is approaching; by 2050 Boomers alone will be passing on $224 million of inheritance each year, creating a $3.5 trillion wealth transfer, according to the Productivity Commission.

Those in their 50s and beyond need to think about their legacy and how to transfer wealth effectively.Credit:Michael Kempf

Previous generations retired with little or no superannuation. Much of the current and future rise in wealth being transferred is generated by increases in property prices and inflated superannuation balances.

So, with more substantial amounts in play, those in their 50s and beyond need to think about their legacy and how to transfer wealth effectively, based on their personal circumstances.

One burning question many clients ask when it comes to wealth transfer is “should I give money to my children while I’m alive, or leave it for them in my estate?”

This depends on individual circumstances, including the nature of your assets and the legacy you want to leave.

It’s an important issue to ponder because the tax treatment is very different for these options. The transfer of assets will trigger capital gains tax and potentially stamp duty, and if you are transferring super you need to be clear whether your beneficiaries meet dependency rules.

Another common issue, with almost one in two marriages breaking down, is inherited assets being exposed during divorce proceedings.

There are numerous strategies to consider that can minimise tax and protect assets when transferring wealth between generations. A financial adviser or accountant can help you properly structure this.

Where there’s a will there’s a way

The issue most likely to trip up a wealth transfer strategy is the will (or lack thereof), which is the starting point for effective succession planning. Topping the list of issues is the fact that approximately half of us don’t even have a legally binding will.

Many Australians are not aware … super money doesn’t automatically go to the beneficiaries nominated in their will.

A will is a great way to protect your family and your wishes. It’s not as simple as “I want to leave everything to my partner”, you really need to plan it and consider the implications of your directions.

For example, many Australians are not aware their will only looks after assets in their personal name or joint names, and super money doesn’t automatically go to the beneficiaries nominated in their will.

Inheriting super

A lot of people get caught out around superannuation inheritance. Super laws are very complicated, so it’s important to get professional advice.

In most cases, if you have adult children who are the major beneficiaries in your will and you want your super to go to them, it’s best not to nominate them to your super fund as beneficiaries.

The treatment differs on how adult non-dependent children and dependent children may be taxed under the Superannuation Industry (Supervision) Act, so careful planning is required to minimise the tax payable by the estate or the beneficiaries.

More food for thought: many people automatically nominate their spouse as the 100 per cent beneficiary of their super – but unless you remember to change this when a relationship breaks down, your ex-partner may still have a legal claim on your assets.

It may be feasible to nominate under-18 children directly as a beneficiary for part or all of your super, however it’s critical to seek professional advice to determine whether you should nominate your children, regardless of age, as super beneficiaries because the treatment can differ based on individual circumstances.

Legacy outside of loved ones

Succession planning is vital, whether it’s for a business or for your personal affairs. Ask yourself: “what is the legacy I want to leave?”

I’ve seen clients with no immediate family and only distant relatives, who’ve given deep thought to their legacy and decided to leave their substantial assets to a not-for-profit or social cause that they are passionate about.

It’s all about leaving a mark that can carry on your purpose and values. And it’s well worth taking the time to think about your legacy and a wealth transfer strategy that’s right for you.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Grace Bacon is the Director of RSM Financial Services Australia, advising clients on wealth management, retirement planning and succession planning.

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