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It is never too soon to begin the Estate Planning process. It is much more than simply making a Will. Estate Planning is all about ensuring your assets are distributed to your chosen beneficiaries, distributed according to your wishes in the most financially efficient and tax effective way.
Inadequate Estate Planning comes at a cost. The worst case might see the “wrong” people inheriting your estate. Or the cost might be expensive legal or trustee company fees or perhaps heartache for your family and friends.
Surprisingly, 60% of Australians do not have a Will.
For those who don’t, the law determines who inherits their belongings. Their spouse and children may not automatically be the main beneficiaries. That is why it is so important to regularly review an Estate Plan, particularly if personal circumstances change. If you re-marry, become divorced, commence living in a de-facto relationship, have a blended family (consisting your own children and step children), or have new members in the family..... you should review your Estate Plan.
A well constructed Estate Plan can help to avoid unexpected taxes and protect assets from claims and challenges. Our advice is to consider choosing someone to be your Power of Attorney, name someone in your Will to become your children’s legal guardian, list your beneficiaries in your insurance policies and nominate binding beneficiaries in your super fund.
Make your Estate Plan easy to administer for your executors. Talk to us to arrange for an Estate Planning Information Kit to identify and organise your estate planning needs.
To contactus on(08) 8333 2488 oremail any queries or comments to us.
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Whether it is to reduce Aged Care Fees, or to increase Centrelink/DVA Pension payments, inevitably gifting will be considered. With a real lack of other asset minimisation strategies available now (since rule changes in the last decade relating to private companies, family trusts and annuities), gifting is one of a few that is occasionally considered (along with funeral bonds - perhaps a story for another day!).
"I am only allowed to give away $10,000 per year" is a statement I hear regularly. It alludes to the Centrelink rule that exempts the first $10,000 per financial year gifted from the Assets Test (for both pension and Aged Care Fee purposes). The other limit that is placed on this is "Up to a maximum of $30,000 in a 5 year period". Centrelink websites and various others explain the ins and outs of the gifting rules, so I'm not going to restate them here.
It is important to understand that you can give away however much you like. Your assets, built up over significant time, are yours to choose what you do with them. Often misinterpretation of the Centrelink rules result in people believing that they are "only allowed to give away $10,000 per year". This is not the case! You can give away as much as you like....
You need to carefully consider the implications. Gifting is unlikely to significantly improve your Centrelink/DVA and Aged Care Fee situation. In some cases, it can make it worse. Gifts above the $10,000 limit are assessed by Centrelink/DVA as if you still hold those assets for 5 years. As an example, a gift of $100,000 to a family member in one lump sum will result in $90,000 continuing to be assessed as an asset for 5 years. Furthermore, the assessed gift amount (in the example, $90,000) is deemedto earn interest at the current applicable deeming rates.
Keeping all of this in mind, there are a few important points to consider:
The $10,000 gifting rule is only applicable where Centrelink, DVA or Aged Care Fees are involved. There is no such thing as a "Gift Tax" anymore, meaning that if a person does not have any reliance on Centrelink/DVA, then there is no limit to gifting. However, if gifting, please consider the impact on the recipient. If they rely on Centrelink payments, or have children who receive Austudy/Youth Allowance, there can be unintended consequences.
Gifting non-income producing assets can worsen your financial position. The beach house/shack, or vacant block of land, may already have it's value being assessed by Centrelink/DVA for pension payments. However, if no income is derived from this asset, then Centrelink/DVA will be assessing no income. Remember that assessed gifts (above $10,000) are deemed to earn income, which may reduce pensions and/or increase Aged Care Fees! Transfering the title of your home can have a similar impact.
Gifting may seem good in theory, but often even smaller gifts of $10,000 may only improve your income from Centrelink/DVA by a few hundred dollars per year, or reduce your Aged Care Fees by a few hundred dollars per year. Given overall cashflow is of paramount importance, is it really worth it? I certainly understand however,that there are non-financial benefits to making gifts.
There are special rules if a person making a gift received a right to reside in the recipient's house in return for the gift.
It is important to get advice if you are considering gifting as part of a Centrelink or DVAmaximisation/Aged Care Fee minimisation strategy. Gifting can make sense in some situations, but it is important to understand all of the consequences.
With over 12 years working at Centrelink, and 5 years as a Financial Planner, I can assist you with all of your enquiries. Please contact me on (08) 8333 2488.
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What is an Investment Strategy?
An investment strategy provides you and other trustees with a framework for making investment decisions. When preparing an investment strategy, you as Trustee must consider many factors that will affect its ability to meet the Sole Purpose Test of generating retirement benefits for the members of the fund, or death benefits for their dependents.
The trustees must determine, evaluate and record the following factors:
the objectives of the fund
the investment methods by which the investment objectives will be achieved
the members tolerance to risk
the members’ needs and circumstances
the risk and likely return from investment
the diversification of the funds’ assets
the liquidity of the funds’ assets
the funds’ ability to pay benefits
the funds’ ability to meet other liabilities
the funds’ use of reserves and derivatives
the consideration of insurance for all members
Recent Legislative Changes
Many SMSF investment strategies will need to be replaced following legislative changes which occurred in 2012. Failure to do so may result in the fund becoming non-compliant and as a result face severe tax consequences.
One of the changes to the legislation is the addition of the words ‘review regularly’. There was no prior legislative requirement that, once the investment strategy was in place, it be reviewed on any sort of regular basis. The other major change to the legislation is the requirement that the trustees consider and recorded whether the fund should hold insurance cover for members.
In the past, administrators and auditors have generally assumed that trustees have in place an adequate investment strategy and have not requested to view the document. Our experience is that auditors are now asking to view the investment strategy as an audit requirement.
What should you do?
The issue for trustees is that they are ultimately responsible to ensure that an investment strategy is in place. If your fund already has an investment strategy in place it may need updating to ensure that it complies with the current legislation.
At Wakefield Partners we have established an Investment Strategy Service. Our service involves gathering a small amount of information about the SMSF’s assets and the members’ personal details. We then provide an investment strategy that includes a set of trustee minutes to record the adoption of the strategy. We provide our service either directly to SMSF Trustees or to SMSF Accountants.
If you are interested in discussing our service further please contact us or visit our Investment Strategy Service page.
Samara Farnsworth Adv Dip FP
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Transitioning from working life toretirement can be an exhausting and nerve racking time. With so many aspects to consider many people become overwhelmed and constantly struggle with that dreaded feeling of having forgotten something.
As you get older your financial mind tends to shift from aspects of raising your family and enjoying your working life to preparing for your retirement. At Wakefield Partners we believe that in regards to your finances, the earlier you start preparing for your retirement, the better off you will be.
Our life expectancies are increasing over time. We are living on average 7 years longer than we did in 1980 and this trend is rapidly increasing. The problem is that as we live for a longer period of time we also need to support ourselves for longer in retirement. This is compounded by the fact that, as a general trend, we are retiring earlier these days.
It is up to each individual to plan sensibly so the chance of having sufficient assets to fund their lifestyle throughout retirement is maximised.
The three main sources of income in retirement come from:
Superannuation– in the form of a pension income stream and/or lump sum withdrawals
Non Superannuation Assets– in the form of returns from personal investments
The capital required to provide the income from these sources (excluding Centrelink) will vary depending on how much you plan to spend in retirement, your age at retirement and how long you need the funds to last.
The following table demonstrates various income levels and the estimated capital that would be required given the number of years spent in retirement.
Income Required During Retirement (pa)
20 Years in Retirement
25 Years in Retirement
30 Years in Retirement
Source: SPAA Annual Conference 2007. Assumptions: 7%pa return. 3%pa inflation, tax & fees not included.
How long you continue to derive income from your saved capital will obviously depend on how much you spend each year. The chart below shows the capital outcome if an individual draws an income of $40,000 pa vs drawing an income of $60,000 pa, based on a starting capital amount of $700,000.
Source: Wakefield Partners estimation. Assumptions: 4%pa return, tax & fees not included.
As you can see the difference in how long capital lasts is quite significant. For this reason, careful planning for your retirement is crucial. At Wakefield Partners we specialise in assisting clients to financially prepare for survive retirement. We not only assist with the management of your Super and Non Super Investments but we can also help to ensure that you receive any possible Centrelink benefits available to you.
Centrelinkis there to supplement other income if your financial position qualifies you for a full or part Age Pension payment. However, there should not be a heavy reliance on this as there are concerns about continued affordability of Government benefits. Lower birthrates and increasing life expectancies are resulting in the average age of the population above retirement age to increase. The implication of this is that it places increasing pressure on the Government to fund.
You can see why being self-funded or largely self-funded in retirement is very important. The more you have saved in your super and non-super portfolios means a more comfortable standard of living in retirement - without relying on Government handouts.
So how can you best plan to have sufficient assets to fund your lifestyle in retirement? The answer; Strategic Planning.
Strategic planning is an integral part of retirement planning. It is the process of determining where you are now and where you would like to be during your retirement. It involves analysing your current situation and setting goals, then designing a strategy to achieve those goals.
The process is relatively straight forward but needs to be conducted in a structured way. This is where an experienced planner can help. At Wakefield Partners we can help you detail your goals and document a clearly defined strategy to help you achieve them. We want you to tell us your objectives and priorities, it’s your life, and it’s your money. Our role is to purely advise you how you can achieve these goals, and help you implement recommendations that are appropriate for you.
For retirement planning advice, we generally offer and introductory appointment free of charge. This appointment will generally take up to 1 hour and our adviser will then be able to provide an indication of what further action is recommended. The initial appointment is without obligation and provides potential clients with the opportunity to meet us and discuss their situation.
If you would like to talk to one of our planners about developing a strategy please contact us via email or phone us on 08 8333 2488.
Samara Farnsworth Adv. Dip. FP
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Recently I was talking to a farmer about his super fund. He described how several years ago his accountant had recommended that he transfer some of his farming land into super.
“I regret doing it” he said. “See how super funds have performed. I have lost a lot of money!”
I tried to explain to him that he still owned the same piece of land, albeit in the name of his super fund rather than personally. The fact that mainstream super funds had performed poorly was hardly relevant to him.
He, like many others had got caught up in the negative sentiment at the time of the GFC. Investment markets were on the nose and super fund returns were in the spot light.
He, like many others was confused about how superannuation works.
Most super funds now have a wide range of investment choices. These can cater for conservative investors (cash or term deposit options) right through to more aggressive investors (shares and geared funds). Too often, I see people with their funds invested in the ‘default’ option, which is then never reviewed.
Peoples’ tolerance to risk generally does change as they get older. Accordingly, investments should be reviewed regularly and should move in line with their risk tolerance. You may borrow to buy an investment property when you are in your 30s, but would you do it in your 60s? Perhaps not. Super is no different. The default ‘Balanced’ option may be too conservative in your 20s and 30s but may be too risky in your 60s.
Alternatively, as my farmer client had found, a self managed super fund provided him with the opportunity to invest in assets that he was familiar with and understood, his own farm land.
When was the last time you reviewed your super investment choices?
Super retains its position as the most effective place for your retirement funds to be placed. Tax and Centrelink concessions can be significant, and can more than offset investment market fluctuations. A decision as to how superannuation can help you save for retirement should have nothing to do with investment markets.
As always, in relation to financial matters, seek professional advice. Don’t just do something because a family member or your mate at the BBQ thinks it’s a good idea!
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