What to consider in an estate plan

Appearing on Ausbiz, Freshwater Wealth founder Roger Perrett explained what he believes are the key considerations for advisers when creating an estate plan, and the importance of developing a plan B, particularly if the client has complex familial relationships or are high-net-worth (HNW) individuals.

While the estate planning process will usually begin with an “ideal gifting plan” or will, if, for whatever reason, this is not able to be carried out, a client will then need to devise a plan B.

“People then like the assets to go to their children, and in many cases, that’s quite simple, dividing everything up equally, but we do see a lot where there might be an estranged child, for example, who they haven’t spoken to for years and years now. What do we do in that scenario?” Perrett said.

“Or in many cases, high-net-worth people may have a business. How do you split that up or what have you? So, there are some challenges when you get to that next layer.”

Perrett also noted the importance of tax considerations when developing an estate plan to reduce the amount of assets lost to tax upon gifting them.

“To give you an example, superannuation is like one of the greatest financial opportunities these days for retirees. They’re not paying any tax on any of their earnings. However, the clanger is though, if they pass away and the money goes to their adult children or non-financial dependents, there can be up to 17 per cent tax … Tax is a really big consideration when you’re making those plans,” he said.

“So in that scenario, maybe it’s better to give your superannuation to an individual like your partner and then divide other assets amongst other family members. So instead of that, just split everything … on a percentage basis, for example, maybe it’s actually better to give certain specific assets to certain people for those tax reasons.”

According to Perrett, there has also been a slight increase in the number of clients who are prioritising passing assets on to their grandchildren, rather than their children, as young people continue to struggle to break into the housing market.

“We are seeing a little bit of that type of thing exactly happening, sort of skipping a generation and going to the grandkids because people foresee they’re the ones that potentially need it, not the kids who are sort of 40 or 50. It’s the kids in that next generation that need more help,” he said.

Furthermore, some clients are also looking to gift assets prior to passing away for much the same reason. As markets continue to put pressure on the younger generations, advisers may need to give greater consideration to when, and to whom, clients will be gifting assets.

“That can also consider, well, ‘Should we do it once we pass away?’ Or we’re seeing increasingly, ‘Should we actually start giving away money now to people or children who need help with home deposits and things like that?’ So instead of actually waiting until you pass away, bringing the gifting forward,” he said.

Speaking on the challenges of estate planning earlier this year, KeyInvest chief executive Craig Brooke explained that a number of factors, such as the proposed tax change on the earnings of super balances over $3 million, are contributing to a sense of uncertainty regarding estate planning.

Additionally, he said Baby Boomers’ desire to financially support their children by covering education costs and help them “gain a foothold in the property market”, as well as growing philanthropy, have also been contributing factors.