Inheritance – some key things to think about

Chances are if you’re of a certain age (or even planning to get there), you’ve thought about what your legacy might be or what your family might receive by way of an inheritance.

In fact, you might be wondering when the best time to give your family their inheritance, particularly your children. Do you go early (aka sooner) when your family members could use it to get financially ahead or get onto the investment or property ladder? Or do you pass on your assets as an inheritance when you die (aka later)?

As with many finance questions, the answer is it depends. The absolute rule of all things money is to first make sure you can manage your own expenses moving forward (plus a little bit extra just in case you live another 10-20 years longer than you were expecting). As an aside, I saw a 107 woman celebrating her birthday and boy was she still switched on and sprightly (for a 107 yr old). So living looooong isn’t totally out of the realms of possibility.

You need to prepare for that and consider the ongoing costs of aged care. A lot of people don’t think they’ll need aged care, thinking they’ll stay in their own home until they die and don’t plan for it. But most Australians will go into some form of care at some point. Think that through now and certainly before you gift inheritance prior to your passing. Most family members won’t want to watch you struggling after helping them out or then have to bail you out with the money you’ve previously gifted them.

One reason people think about an early inheritance and one of the questions we often get is whether death and estate taxes are still a thing? And the answer in Australia (as the legislation currently stands) is no, although the pollies think about reintroducing it again from time to time. But for now, it’s a no.

Let’s just say though that you’re good looking after your own needs during your expected lifetime and you’ve got some extra funds you’re contemplating putting to better and more immediate use.

That’s when you might consider an early inheritance (aka whilst you’re still alive) for your family members.

Financial considerations of an inheritance:

Beware though, there are a myriad of possible perils including taxation (for both you and your family members), pension impacts (for you), impacts on superannuation (for both you and them). These are questions best worked through with a trusted financial advisor or accountant.

For example

• If your children receive an inheritance from your super – on your death, they’ll likely pay 15% tax. However, that can be avoided if you withdraw the money yourself and gift to them whilst you’re still alive.
• Gifting whilst you’re still alive can mean an increase in aged pension payments, five years from gifting, because that asset will no longer count towards your means/asset tests.
• If you can downsize your family home (there are concessions that apply to you putting some of those funds into your super) and you can gift leftover monies freely. However, if the property asset is passed on after your death, there are certain timeframes that have to be adhered to for disposal of that asset. And if the property is an investment property, CGT is likely to be applied (even if the deceased has accrued net losses – these do not pass to the beneficiary).

As the rules stand at the moment, a couple between the ages of 67-75 can each contribute $110,000 a year to their super and over those eight years, that could amount to $1.8million. Most people don’t have that spare and just lying around, but it gives you an idea of what can be done.

And as always, these are just examples that may or may not apply to your individual circumstances. So you should always seek professional advice.

Family considerations with inheritance:

And then there are the family impacts and falling-outs that might transpire – people can get all sorts of odd when there’s money involved. There are also other things to consider such as if you help your married or de facto adult child with a lump-sum payment that goes towards their property or any other investment (even a bank account), should they split from their spouse, their spouse will likely be entitled to 50% of those funds. In which case, you might consider a family trust which keeps the properties in the trust and likely inaccessible in the case of a partnership breakdown.

You should also take into account the age of the gift-ee/beneficiary and whether or not the gift will truly help them or if a lump sum is the best way to go. And whilst you can’t make your loved ones use gifted funds for their greatest benefit, you can have conversations with them about how best to use such gifts – or better yet, put them in touch with a good financial planner/accountant to help them work through the implications of the gift.

And that’s where we can help. If you’re looking for a trusted financial guide to help you (or your family members) plan for and navigate through the interesting waters that inheritances can be or help you set up a family trust, we’d be delighted to help. You can call us on 6023 1700.