Transferring your wealth to the next generation

Key takeaways

  • Start the conversation early so younger generations understand what they’re likely to inherit
  • There are strategies that can help to ensure your wealth passes in a tax-efficient manner
  • Testamentary trusts can be beneficial if you want your wealth to remain in your direct blood line.

We spend a lifetime generating wealth but few of us spend the time to ensure it’s passed on in the way we want it to.

Having a plan in place for how and when you want your wealth to be transferred, will help all parties understand your intentions and the process.

While there isn’t a one-size-fits-all approach, we’ve highlighted a few considerations to get you started.

Start the conversation early

Before any plan is implemented, it’s crucial that families have honest conversations about their wealth so younger generations understand what they’re likely to inherit.

This will help your beneficiaries prepare and have a planned purpose for how it should be used. It also means they have time to seek professional help if needed.

Another benefit of these conversations is they present an opportunity to talk about any long-term goals you may have. For instance, you may want your beneficiaries to set up a retirement account, allocate it to their kids’ education or support a cause you love.

Seek help from a professional

Before making a decision to relocate, it’s always important to consider the impact it will have on your lifestyle and financial situation.

A financial adviser can help by investigating different strategies for you so you can make a balanced and informed decision on whether a tree/sea change is your best option.

They can also assist with other aspects of your financial life—savings, insurance, tax, debt—while keeping you on track to achieve your goals.

More importantly, they can answer questions like:

  • How can I pay off my mortgage faster and reduce my debt?
  • What age can I stop working and retire?
  • What strategies can I use to build my wealth?

If you value the experience of experts in other aspects of your life, don’t discount it when it comes to managing your life savings.

Tax implications

Depending on your circumstances, there are strategies that can help to ensure your wealth passes in a tax-efficient manner.

Super

One of the most common methods of wealth transfer is through super. But when a family member dies and their super is passed to beneficiaries—such as their children who are financially independent—death benefit taxes on some or all of the benefit may apply1.

The payment of super benefits to beneficiaries on death may also be challenged by those who felt they didn’t receive the share they were entitled to.

One option that may help to avoid these outcomes is to withdraw super after you’re retired, rather than on death. This can also reduce death benefit taxes too.

Gifting

Transferring wealth via gifting can be a good option as you won’t have to pay tax on the money you give. It can however, affect you financially if you’re receiving social security benefits and you exceed the gift limits.

You’re entitled to gift up to $10,000 in cash gifts and assets each financial year and up to $30,000 over five consecutive years2. If you exceed this limit it may reduce your social security benefit.

An alternative to gifting that you may prefer is loaning wealth to family members. A loan to a family member will not affect your social security benefit and can usually be recalled if, for example, the family member’s marriage or de facto relationship breaks down.

Capital Gains Tax

If you choose to transfer the ownership of assets while you’re still alive, a capital gains tax (CGT) event may occur. By contrast, CGT will generally not apply at the time ownership of assets is transferred to beneficiaries via a deceased estate.

Consider setting up a trust

Some people choose to pass their wealth to their intended beneficiaries via a testamentary trust rather than leave all their assets directly to them.

One of the main benefits of testamentary trusts is they can enable your wealth to remain in your bloodline (ie pass to your lineal descendants). It also enables wealth to pass in a manner that protects beneficiaries who may be vulnerable due to marriage or a relationship breakdown, or due to their profession or a business they operate.

In other cases, testamentary trusts can simply preserve wealth by ensuring it is not misspent by beneficiaries on poor lifestyle choices or investment decisions.

These trusts, which are written into the will when planning your estate affairs can have significant tax benefits too.

For example, if a beneficiary receives their inheritance under their personal name, they may be liable to pay additional tax on investment earnings or capital gains at their personal marginal tax rate. However, if they take the inheritance through a testamentary trust, particularly where the beneficiary has a high personal marginal tax rate, they may not be liable for as much tax as income can be generally be split with the beneficiary’s other family members, including young children.

Depending on your circumstances, you may even choose to set up separate trusts for each beneficiary. This will enable them to invest the way they want and manage their finances independently over the long-term.

Write a will and update it

One of the simplest things that people often overlook is writing a will. This document is the bones to any successful wealth transfer plan and must be updated regularly to ensure any major life changes are accounted for. This can include anything from getting married or having children, to selling the family home.

If you would like competent advice in this area,  please email us at ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Article source: https://www.mlc.com.au/personal/blog/2021/04/transferring-your-wealth

How much do you need to retire?

Key takeaways

  • Start with a clear idea about the type of retirement lifestyle you’re after
  • Retirement calculators can tell you how much capital you need to support the lifestyle you want
  • A financial adviser can guide you in implementing strategies to save more and avoid running out of money.

You’ve spent decades working, so you don’t want to spend your retirement years scrimping for cash.

How can you make sure that doesn’t happen?

There’s a whole host of factors that will determine your lifestyle in retirement – savings, tax, investment strategy and more.

It can be complex – but it doesn’t have to be. There are tools and strategies that can help you enjoy your retirement if you start preparing for it now.

Start with a clear goal

The starting point is having a clear idea of the type of retirement lifestyle you’re after. This may be hard to know if you’ve still got a while to go before retiring, but the sooner you start thinking about it, the sooner you can implement a plan to turn your retirement dreams into a reality.

Some of the things you might consider are:

  • How often you would like to travel and the types of holidays
  • Whether a sea change or tree change is part of your plan
  • Downsizing – or upsizing. What are your accommodation plans in the future?
  • The types and frequency of any recreational activities
  • Do you intend on providing financial assistance to your family?
  • What options would you like to have in relation to help and support either at home, or perhaps in a retirement village or aged care facility?

Once you’ve decided on your retirement lifestyle, you can work through the likely cost of your expenses, where your retirement income will come from, and finally – “how much do I need to live the life I want in retirement?”

Seek help from a professional

If you value the experience of experts in other aspects of your life, don’t discount it when it comes to managing your life savings.

A financial adviser is not just someone who helps with investments. Their job is to help you with every aspect of your financial life—savings, insurance, tax, debt—while keeping you on track to achieve your goals.

More importantly, they can answer questions like:

  • What age can I stop working and retire?
  • What strategies can I use to build my wealth?
  • How can I ensure my wealth is transferred to my children?

If your to-do list is endless and you never quite have time to tackle your personal finances, a financial adviser may help to set you on the right track.

The Association of Superannuation Funds of Australia’s guide

The Association of Superannuation Funds of Australia (ASFA) gives us a general guide. According to their research1, updated quarterly, this is what you need to live at two different levels in retirement:

 

A modest retirement lifestyle would be one that’s slightly better than you’d enjoy on the Age Pension.

A comfortable retirement lifestyle includes a better standard of living (including better consumer goods) and more recreational activities such as some overseas travel.

Calculating how much you’ll need to support this lifestyle

ASFA’s figures give us a good starting point, a sense of what the average retirement might look like and what it would cost.

But what’s more important, is how much capital you need to support the lifestyle you want – and how you can go about accumulating that capital.

A retirement calculator can help you answer all these questions because it covers a whole range of factors.

  • Your current and potential super savings. It takes into account how much you’ve currently saved and your future saving based on income and your ability to save extra money into super.
  • Your investment choices. Increasing the return on your super savings can make a big difference to the amount of capital you retire with and your retirement lifestyle when you get there.
  • Your family situation. A retirement calculator allows you to build your spouse’s income, contributions and final super balance into the calculation.
  • Social Security and part-time work are two crucial ways in which many people at least partially fund  their retirement. The forecaster helps estimate the effect any Age Pension you are eligible for (and any work you do) has on your retirement income.

How to avoid running out

In short, using a retirement calculator gives you an in-depth view of how much you can save for retirement and what that turns into as a regular income.

Speaking with a financial adviser can also help you integrate other factors, such as changes that might make the most difference whether that’s your investment approach, contributions strategy, pension eligibility or contribution from your spouse.

From this knowledge comes the power to create a personalised super strategy. One that gets you to the retirement lifestyle you’ve dreamed of and helps to make sure you don’t run out of money.

If you would like competent advice in this area,  please email us at ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Article source: https://www.mlc.com.au/personal/blog/2020/09/how_much_do_you_need

 

How to help your parents and still save for retirement

How to help your parents and still save for retirement

The financial impact of COVID may have cut into your parents’ retirement savings, or perhaps they just simply didn’t save enough to last the distance.

Whatever the reason, if you’ve now found yourself with parents you need to help, you may be wondering how this will affect your own retirement plans.

So, here’s a few things you can do to help both you and your parents improve your chances of retiring comfortably.

Analyse your parents’ assets and savings

It can be tough to start a conversation about money with your parents, but it’s one of the most important conversations you can have to understand their retirement savings.

Having access to their financial information will give you a better understanding about their situation. More importantly, you’ll know if you’re going to be required to help them financially.

Ideally you want a clear picture about their current assets, savings and debt status plus an understanding of their income and expenses. There are budget planners and phone apps you can use to help get control and visibility around spending habits. You may also want to use a retirement calculator to give an idea of how long their money will could last.

If you find they don’t have enough income to support their retirement, there may be things they can implement to change it. This could include cutting down expenses, moving to a more affordable home or renegotiating their debt. It’s very important to make sure they are maximising any social security entitlements they may have too.

Review their health insurance

Healthcare costs are becoming increasingly onerous so it may be advisable to review your parents’ health insurance. It’s important they have enough cover for medical expenses, long-term care and other retirement costs.

Seek professional help

Enlisting the help of an expert, such as a financial adviser, may alleviate some of your pressure.
Better yet, financial advisers can assist in developing appropriate strategies to ensure you’re meeting your own retirement goals as well as your parents. They can also investigate what tax concessions, or other government benefits, your parents may be entitled to.

Perhaps most importantly, a financial adviser can help you take a holistic view. They can look at your parents’ situation and your own and work out strategies that optimise both outcomes over the long-term.

For example, you may need to reduce your current spending to help your parents retire more comfortably. That’s a short-term cost to you – but if it means your parents can keep important assets like the family home, you may benefit from that in the long-term. A financial planner –trained, impartial and able to see the big picture – can be a big help.

Set clear boundaries

It’s an admirable thing to help your parents but be clear about what that help consists of – for example it’s one thing to help out with their bills occasionally, but it’s another to have your name placed on loan documents!

If that isn’t the type of help you had in mind, it’s important to communicate that – and stick to it.

Invest in your own retirement

There are retirement calculators you can use to see if you’ll have enough saved to maintain the standard of living you’d like in retirement.

If you find you need to make financial adjustments to increase your retirement savings, one option could be to contribute more to your super on a regular basis using your before-tax or after-tax income. There are tax benefits that come with this too.

For example, if you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. This means you’ll reduce your taxable income for the financial year and potentially pay less tax, while adding to your super balance. It’s a win-win.

These types of contributions are capped at $25,000 per financial year however. If you choose to contribute over this amount, you may be required to pay more tax.

Bottom line: We all want to help our parents if they’re struggling financially, but it’s important to think of your own situation too. And don’t forget, money isn’t everything—one of the best things you can do for your parents is to spend quality time with them while you’ve got it!

If you would like competent advice in this area,  please email us at ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Article source: https://www.mlc.com.au/personal/blog/2021/03/how-to-help-your-parents-and-still-save-for-retirement