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Financial adviser’s crucial advice for those leaving an inheritance

Your will lets you determine how your assets are divided. It should be updated as your circumstances change: having kids, getting married or divorced, the arrival of grandkids etc.

That includes asset sales too: things get messy if it leaves a property to John and shares to Joan but you sold the property. Remember wills can be contested but only by certain people.

Beneficiaries

Certain entities are treated separately from a will, including superannuation, companies, and trusts. Failing to document succession roles may force the sale of assets, potentially triggering unintended gains or unrecoverable losses. Consider the need to provide for any children aged under 18, health trusts, and who will oversee their inheritance until they reach legal age.

Businesses

Your role and business ownership structure has a major bearing on what form an inheritance takes:

Owner-operators: Can the business continue without you? How will that impact its value and viability as a going concern? For multiple beneficiaries, will they inherit equal shares? Do they agree on how to manage it? Do they have the necessary skills? How will that impact the goodwill of staff, suppliers and customers?

  • Business owner-occupiers: Will the same people inherit both the business and the premises it occupies? Can they afford to take ownership of both?
  • Business partnerships: Do you have a buy/sell agreement with your business partners? Do they have separate insurance to be able to buy out your stake? (Likewise, do you need similar cover?).
  • Company executives: What shares and equity options are part of your package? What happens to these on your death – can they be retained? Are they subject to a forced sale, and if so, at what value? Are your beneficiaries even aware they exist?

Superannuation

As previously mentioned, super is treated separately from your will, and there are limited eligible beneficiaries. This is particularly poignant for blended families: wills can be contested – directing funds from super can avoid contention and provide for everyone.
Don’t let your super nominations lapse (this can happen). And consider whether they should be binding or non-binding.

Property

For jointly owned property – the family home or investments – are you listed as joint tenants or tenants in common?

Joint tenants have equal ownership and automatic right of survivorship; tenants in common have more flexibility to nominate inheritance of their share of the property. Does it mean the remaining spouse needs to vacate the property? Factor in its condition and upkeep: inheriting property that is unsaleable or needing major repairs could be more a curse than a gift.

Insurances

Do you have insurances outside of super? It can help you allocate disbursements and speed up claims processing for beneficiaries to clearly outline current policies in your will and nominate beneficiaries with the insurer.

Confirm these policies don’t double up with ones held in super. If they do, get advice before cancelling anything to avoid inadvertently terminating a superior policy.

Tax

Unless tax factors into your plans, the tax office could ultimately be your biggest beneficiary:
Deceased estate tax return: your estate may be liable for outstanding income taxes or be eligible for a refund.

  • CGT: Asset sales, including forced ones, may attract Capital Gains Tax or Losses.
  • Transfer/stamp duty: Commercial transactions may attract transfer duties
  • Testamentary Discretionary Trusts: a tax-effective option for retaining family assets. Children/grandchildren under 18 years are taxed at adult tax rates (not the higher child tax rate).
  • Super death benefit: This may or may not be taxable, depending on a range of factors applicable at the time of your death. Strategic advice from a financial adviser is valuable.

Ensure your accountant and financial adviser work together to safeguard both your wishes and your beneficiaries’ inheritances. A little planning on your part now will save huge costs and mistakes – financial and emotional – for the ones you leave behind.

Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce: Your Survive and Thrive Financial Guide.

Note this is general advice only and you should seek advice specific to your circumstances.

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