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.

For many Australians, their 50s are a turning point. Children may be financially independent, retirement is becoming more tangible and family wealth has often grown through property, superannuation and investments. This makes it an ideal time to review your estate plan, consider how you want your wealth transferred and ensure your legacy reflects your wishes.

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. 

 Should I give money while I'm alive? 

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.

Many Australians are now choosing to provide financial assistance earlier in life by helping children purchase their first home, fund education or establish investments. While gifting assets during your lifetime can provide immediate benefits to your family, it's important to balance generosity with your own retirement needs and financial security.

Before gifting significant assets, consider the tax implications, potential impact on Age Pension entitlements and whether the transfer could expose those assets to relationship breakdowns or creditor claims. 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 

 Estate planning is about more than a Will 

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.

While a legally valid Will is the foundation of every estate plan, it should not be the only document considered.

A comprehensive estate plan may also include:

• Enduring Powers of Attorney
• Binding superannuation death benefit nominations
• Testamentary trusts
• Family trust succession
• Company ownership succession
• Tax planning strategies

Reviewing these together helps ensure your assets pass to the right people in the most effective way.

 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.

Superannuation is often one of the largest assets Australians accumulate during their lifetime. Unlike many other assets, super generally does not automatically form part of your estate and is instead governed by superannuation legislation and your fund's governing rules. Regularly reviewing your beneficiary nominations can help ensure your super is distributed according to your wishes and in the most tax-effective manner.

Legacy outside of loved ones

Legacy planning isn't always about passing on wealth to children. Many Australians choose to support charities, community organisations or causes that reflect their personal values.

Incorporating philanthropy into your estate plan allows your wealth to continue making a positive impact long after you're gone while creating a lasting legacy aligned with what's important to you.

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. 

 When should you review your estate plan? 

Even if your circumstances haven't changed, reviewing your estate plan every three to five years can help ensure it continues to reflect your wishes.

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.

If you wish to speak with someone about these superannuation changes, please contact Grace Bacon or your local RSM adviser. 

Note: past performance is not an indicator of future results.

This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.

As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.

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