November 10, 2023 | 5 min read
Summary: Having a plan for how and when you want your wealth to be passed on, will help those receiving it understand your intentions and the process. Here’s how to get started.
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 to transfer your wealth, will help those who are inheriting it, 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.
Many people find it hard to discuss subjects like death and the future division of wealth, particularly when many family members are involved.
But there’s a lot to be said for having open discussions about how assets and future inheritances will be divided.
This will help your beneficiaries—those receiving your wealth—prepare and have a planned purpose for how it could 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 those inheriting your money to set up a retirement account, allocate it to their kids’ education or support a cause you love.
There may be strategies that can help to ensure your wealth passes in a tax-efficient manner.
While super is a significant component of retirement planning, it can also serve as an effective means of transferring wealth to loved ones.
Ensuring that any super you have left over at the time of your passing is distributed according to your wishes, generally requires you to complete a binding death benefit nomination provided by your super fund.
It’s important to be aware that upon death your beneficiaries may be charged tax on this money, depending on their relationship with you. For example:
If it is likely that non-dependents will receive your super upon your death, a possible option is to withdraw part or all of your super during your lifetime to reduce tax payable.
Transferring wealth via gifting can be a good option. It may however, affect you financially if you’re receiving social security benefits such as the Age Pension and you exceed the gifting limits.
You're entitled to gift up to $10,000 in cash gifts and assets in one financial year. You can also gift up to $30,000 over five consecutive years. If you exceed this limit, Centrelink assess the excess amount as an asset and deem the income, for a five-year period.
An alternative to gifting that you may prefer is loaning wealth to family members. A loan to a family member may not affect a social security benefit and can usually be recalled if, for example, the family member’s marriage or de facto relationship breaks down.
Some people choose to pass their wealth to younger generations through 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 with your direct family members. 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 preserve your wealth by ensuring it’s not misspent by beneficiaries on poor lifestyle choices or investment decisions, for example.
Tax benefits of trusts
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 (the tax rate they pay on their income).
However, a testamentary trust may lower the overall tax liability. This is because the income can 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.
One of the simplest things that people often overlook is writing a will.
This document is the mechanism for 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 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 can develop and execute a wealth transfer plan. They can also recommend other suitable professionals such as accountants and lawyers to assist with drafting wills, establishing trusts, and other legal documents to ensure your wishes are carried out.
More importantly, you can get help to answer questions like:
Are there any tax implications to wealth transfer?
Yes, there can be tax implications including capital gains tax and estate taxes. Consulting with a tax professional or financial adviser is recommended.
Can I transfer wealth while I'm alive, or does it have to wait until my death?
You can transfer wealth during your lifetime through gifting, setting up trusts, or other means. The choice may depend on your goals and circumstances.
How can I ensure my wealth is used responsibly by the next generation?
You can include terms in trusts or your estate plan (will).
How can I protect my wealth from legal or financial challenges after I pass away?
Asset protection strategies, like trusts and insurance, can help shield your wealth from creditors and legal claims.
*Based on KPMG Super Insights 2023 Report as at May 2023 KPMG Super Insights 2023 Report https://assets.kpmg.com/content/dam/kpmg/au/pdf/2023/super-insights-2023-report.pdf
As one of the largest pension providers in Australia,* we know that growing and keeping your money safe is important. When it comes to support, we go the extra mile—providing general pension advice at no additional cost.
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This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at November 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.