Lesson 5.4

Wills and inheritances: Passing on your wealth

If you are on course to have financial wealth to pass on when you are gone — whether to immediate family, relatives, friends or charitable organisations — it pays to think about how you plan to do so.

Here are five steps to help you get started about what financial legacy you might like to leave.

Step 1. Check your own financial safety net first

You may have plans to travel more after your retirement. You could also need health care support as you age. Whatever may be the case, the later years of life can bring significant changes and it’s important you plan for these.

Before you start thinking about giving to others, it’s important to make sure your own financial needs and wants are looked after. 

Step 2. Consider early transfers of wealth

We’ve all seen the rise of the ‘Bank of Mum and Dad’ in recent years.

Increasingly, adult children are requiring more support than ever to crack into the home ownership market. Parents can help with direct money transfers or by agreeing to go ‘guarantor’ on their child’s home loan, reducing costs.

It’s important to consider the tax consequences of any wealth transfers and any wishes you might have about what happens to your money in the event your child’s relationship breaks down. Seek appropriate advice.

Step 3. Write a will

We all know we should have an active will in place, but whether it’s busyness or a reluctance to think about ‘the end’, many Australians do not.

A will is a legal document setting out how you would like your assets to be distributed when you die. It should also nominate who you would like to act as executor of your estate (your assets).

While there are ‘starter-kits’ available, it can be well worth paying for a lawyer to help you draft a legally binding will. The cost of this can range from around $500 to a couple of thousand dollars, depending on the complexity of your affairs.

It can also be worth thinking about having a legal ‘Power of Attorney’ document in place nominating who you would like to appoint to make decisions about your financial affairs on your behalf, should you reach a point in life where you are incapable of making such decisions.

Step 4. Seek advice

In addition to consulting a wills and estates lawyer, it can be helpful to seek personalised financial advice around your plans to transfer your wealth. Various ‘gifting rules’ apply that may affect your eligibility for the age and other pensions.

While there is no formal inheritance tax in Australia, special rules and taxes can apply to the transfer of superannuation, and other, assets. It is also necessary to make a ‘binding nomination’ to your super fund regularly to tell them to whom you would like your assets distributed if you pass away.

There are also specialised tax strategies, such as a family trusts, which could apply to how you would like to transfer your wealth. Engage properly accredited and reputable advisors if you decide to seek advice.

Step 5. Communicate your wishes

Unfortunately, disputes over the estates of deceased family members can be a major source of disagreement for surviving family. It can help to communicate your wishes clearly and prepare others for your decisions.

Talking about money with your loved ones regularly, provided it is safe to do so, can help to manage any emotions or disappointments. If you feel pressured by anyone, you can contact the Ageing and Disability Abuse Helpline on 1800 628 221.

No one likes to think about death, but proper planning and support can give us peace of mind our legacy will be protected.