Don’t forget about Estate Planning

“You only live twice. Once when you are born. And once when you look death in the face.” So said Ian Fleming, author of James Bond novels.

It’s also a good way to think about estate planning. Many of us, naturally, put off thinking about our own mortality. But estate planning – legally laying out what happens to your assets after you’ve gone – can free you up to get on with life. Because you’ve done what you can to look after those you care about.

The fundamentals of estate planning.

  • A valid will

A will sets out your wishes as to what happens to your assets when you’re gone. If you have assets – and people you care about – you should have a will.

A solicitor can help you draft a will. It’s cheaper to do it yourself via a will kit, but as the NSW Trustee and Guardian1 points out below, poor drafting of a will can tie up your estate in legal complexities and disputes. That can cause real pain and suffering for your family.

Superannuation

You may be surprised to learn that your super can’t be ‘managed’ by your will, or at least by your will alone. That’s because it’s held in trust in your superannuation fund and in legal terms, it’s your super fund trustee who decides how it’s disposed of upon your death.

However, you can help ensure that it goes to the people you want to give it to by creating a Binding Death Benefit Nomination through your super fund and so directing your super fund to pay your super to a specific person, or into your estate on your death. At that point, your will can determine how your super is disposed of.

As you can see, this is a more complex area than many people expect – so talk to your accountant, a financial adviser, and your super fund.

Powers of Attorney

According to the Australian Bureau of Statistics2 12.6% of people who live to 85 or over have Dementia/Alzheimer’s as their main long-term health condition.

That’s a reminder that for many of us there will come a time when we have difficulty making decisions about our own health or finances. A legal instrument called a power of attorney can help ensure that someone with your best interests at heart can make those decisions on your behalf.

There are different types of powers of attorney and they vary by jurisdiction within Australia. These are challenging ideas to contemplate but having the appropriate legal structures in place can provide peace of mind.

Powers of attorney can also ensure that someone who cares about you has the legal right to make important (sometime life-saving) medical decisions on your behalf.

Bottom line: don’t leave a mess behind

Wills, super and Powers of Attorney are just some elements of a good estate plan. You might need a family trust to ‘own’ and control some of your assets. These vehicles can have tax and asset protection benefits.

The bottom line though is that once you have a reasonable level of assets, you should start thinking about your estate planning.

Thinking about your own death or disability may not be fun. But ensuring your loved ones are cared for and your assets are disposed of in accordance with your wishes – is something you should do now. Calmly, rationally, in consultation with your family and with the help of a financial adviser, accountant and solicitor.

The alternative – leaving these big decisions to your family who may be unfamiliar with the law and dealing with grief – is something you wouldn’t want to leave to anyone.

If you have questions and would like your financial situation to be evaluated, please email us on ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Article source: https://www.mlc.com.au/personal/blog/2021/06/dont_leave_a_mess_behind

Interest rates – accentuating the negative

So it’s just a normal day. You walk into the bank, deposit some money. And the teller asks you to pay them interest. Keeping your cool, you ask why. And the teller apologetically explains: “Oh we’ve got negative interest rates.”

Right now, we’re living in a world where some countries have ‘negative interest rates.’ That means, that instead of rewarding customers for depositing money, a bank (or a central bank) will charge them interest. In financial terms, that’s the world turned upside down.

So how did we get here?

The GFC hangover and COVID-19

Broadly speaking, negative interest rates are engineered by governments and central banks as a way of getting life into a chronically spluttering economy. If it costs you money to put your money in the banks (or it costs banks money to park their funds with the Government) there’s more incentive for individuals to spend it on housing, at the shops, or on holidays. And for banks to invest it in areas that also foster more economic activity and employment – like lending to business.

There’s no coincidence we’re talking about negative interest rates in 2021. They were part of a suite of measures used by some countries to try and get out of the economic slump caused by the Global Financial Crisis back in 2008/09. The economic shock administered by COVID-19 has brought them back into fashion – countries as advanced as Japan, Switzerland and Sweden have jumped on the negative interest rate train.

Australia stays positive

So what do negative rates mean for you? The good news is that they’re not really happening in Australia. At least not yet. And they probably won’t.

Back in November 2020, the Reserve Bank of Australia (RBA) Governor Dr Philip Lowe said: “There has been no change to the Board’s view that there is little to be gained from lowering the policy rate into negative territory.”

Given that the Australian economy has picked up sharply since then – house prices and employment numbers are on the upswing – there seems less need for negative interest rates in Australia than most other countries.

Different folks

But, while not negative, interest rates in Australia are still at historic lows – and could stay that way till around 2024 according to Dr Lowe and his team at the RBA. This has implications for everyone – but different implications depending on whether you’re a saver or a borrower.

  • If you’re a saver or retired, low interest rates make it harder to earn the income you used to from products like Cash Management Trusts and Term Deposits. You might find you are considering investing in riskier assets, like shares, to try to make up that income.
  • If you have large debts – like a mortgage – your interest payments are likely significantly lower. And if you’re looking to borrow, it’s possible you can borrow more money, because your repayments will likely to be much lower.

What goes down must come up

As mentioned earlier, these low interest rates are a symptom of a global economy trying to get itself going again.  They’re not normal (though they might feel like the new normal). That means it could make sense to get good advice about how to handle this economic trend – to look out a bit longer than the next three years.

Here’s how good advice could help:

  • Savers: A financial planner can help you find sources of extra income without taking on too much risk to do it.
  • Borrowers: Some expert advice could help you ensure you don’t overcommit when it comes to borrowing. As the popular US financial planning radio star Dave Ramsey puts it, “A lower interest rate doesn’t make a debt go away.”

Bottom line: look past today’s trend

Low and negative rates are likely to be with us for some time. But for Australian savers, borrowers and investors, it’s important to look beyond the obvious, front page economic headlines.

A good financial planner can ensure you aren’t carried away by the latest news and forget your long-term plans.

After all, the COVID crisis is just a year old – and already people are talking about a potential post-COVID boom. Things go down – and up again – and down again. Just like interest rates.

If you have questions and would like your financial situation to be evaluated, please email us on ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Article source: https://www.mlc.com.au/personal/blog/2021/06/interest-rates-accentuating-the-negative

2021 Federal Budget insights and analysis

On Tuesday 11 May 2021, the Australian Government handed down its Federal Budget.

To understand what the Budget proposals mean – and how they might affect you personally, please find attached some resources prepared by MLC:

If you have any concerns, or would like to discuss your financial strategy, please feel free to arrange an appointment by contacting Dev at ds@bluerocke.com

Vanguard quarterly economic and market update – March quarter 2021

Stay on top of market and economic news with Vanguard latest quarterly analysis. Track the performance of Vanguard’s diversified strategies over the quarter, and get ahead of emerging themes and investment trends with expert analysis.

Read the latest report here to help you make informed investing decisions.

If you have questions and would like to discuss this, please email us on ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Source: https://www.vanguard.com.au

 

 

The trend that will turbocharge emerging markets

Emerging markets are soaring off the back of the COVID-19 recovery, but there are a few consumer trends that are here to stay.

One trend is a cut above the rest. Emerging markets have reached a point of discerning tastes and a hunt for quality. Consumers in emerging markets are starting to seek higher levels of after-sales service, a trusted brand and product provenance. This behaviour will transform the emerging market sector from a numbers game to a function of price. It also shows the elasticity of the market and looks toward being able to absorb inflationary pulses.

“What you will see is that market growth is a function of volumes, so penetration of units, and a function of price. Price – we think of as price rises, but really it’s premiumisation,” said Duffy.

“In the case of home appliances, it’s taking a very basic rice cooker, or oven hob and turning it into a smart cooker or a smart hob, or a smart refrigerator. So those sorts of shifts are ongoing,” he said.

Data and marketing research house Nielsen defines premiumisation as “goods that cost at least 20% more than the average price for the category”. Twenty per cent more. Imagine if inflation was running at 20% – there’d be blood in the streets. Yet, the premiumisation trend is taking off in emerging markets and shows no signs of slowing down.

The growing middle class in China, India and other parts of Asia has created huge market opportunities for investors. Perhaps counter-intuitively, the pandemic has only accelerated this trend. While you may think that the economic slowdown from 2020 may linger, experts are more inclined to think that the pent-up demand, forced savings and additional stimulus from pandemic relief is actually going to perpetuate the trend of the premium consumer.

In part, it’s a result of the rising middle class in China – a trend that has been unfolding for at least a couple of decades. But while some parts of the country remain tied to the developing market thematic, other regions are chasing higher quality goods.

“In the same way that we said that not all emerging market countries are equal, not all provinces in China are equal. It is a vast market,” said Duffy.

Premiumisation of soy sauce

Soy sauce is not a product that immediately comes to mind as a premium product. Therein lies the opportunity. In his video below, Duffy outlined a few examples of how this premiumisation is playing out in emerging markets.

Foshun Haitian (SHA: 603288) is a stock that Fidelity has held for a long time, Duffy told us. They produce soy sauce as part of a range of condiments, sauces and flavourings for the Chinese market.

“What COVID actually did is that, despite the pressure that came on the restaurant channel as a consequence of closures, it made consumers far more aware of product provenance and brand quality,” said Duffy.

“So the actual ingredients and the sourcing, and the heritage of soy sauce as a product became even more important than it had been previously,” he said.

But the concept can also be rolled out across technological innovation as a premiumisation of existing products, such as the aforementioned rice cookers.

“It’ll become a shift of less volume, less consumption of units per capita, but the units that are being consumed are high price point, and then ultimately probably more value add to the companies that can execute on that,” said Duffy.

If you have questions and would like your financial situation to be evaluated, please email us on ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.

Article source: https://www.fidelity.com.au/insights/investment-articles/the-trend-that-will-turbocharge-emerging-markets/

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