DYING is bad for your health, and can also do some unpleasant things to your family’s wealth. While the impact of an unexpected death for young families is obvious, older Australians can also suffer financially on several fronts when their partner dies.
Knowing the rules, and how to work around them, is the key to leaving as much money as possible for loved ones.
More than a dozen major countries have death taxes, but not Australia. However, if you die without a dependant, such as a spouse, much of the money paid out from your superannuation can be slugged with a 17 percent tax. “Most people call it a pseudo-death tax – there’s no other way to describe it really,” said Hewison private wealth managing director Andrew Hewison.
“If you have all your wealth in super with a large taxable component paid out to a non-dependant,
15 percent tax plus the Medicare levy is going to be deducted.”
Mr Hewison said this made super a tricky estate planning tool. However, there are strategies available to some over-60s to withdraw their super then put it back as a nontaxable contribution.
Almost 80 percent of retirees receive a full or part age pension, and with the single rate set at about two-thirds of the couple’s rate, the death of a spouse delivers an instant household income cut.
“The age pension for a single person is $907.60 a fortnight – it’s not a lot of money,” Mr Hewison said.
Another big impact comes from lower means test thresholds for singles compared with couples.
Planning for Prosperity senior adviser Bob Budreika said dying was bad financially for pensioners’ partners.
“The biggest problem is when the spouse dies, the assets test limit goes down,” he said.
Strategies to solve the pension assets test squeeze are limited but may include gifting money to relatives, spending on something such as an overseas holiday, or upgrading your home – the
only asset that’s exempt from Centrelink testing. None seem palatable to many retirees.
Mr Budreika said it was common for one member of a couple to be more actively managing the money, and if they died first there was often trouble for the survivor. “It’s a pretty dangerous position to be in,” he said. “Even though one person may be more passive, at least have a broad overview and understanding.”
Mr Hewison said people of all ages should understand where their family income came from, ensure their wills and wider estate plans were up to date, and seek professional advice where needed.
The stats relating to the number of people who seek financial advice and support is only about 20% of the population* which is rather a small number when you consider that virtually all people in the workforce have some form of debt, superannuation or insurance.
There has been plenty of promotion by Industry Superannuation Funds, various articles and programmes in the media as well a plethora of new Government legislation which you’d think would trigger more people to investigate their financial position and what they can do to improve their prospects.
The reason for this financial apathy, we believe, is that people’s awareness of their financial state is largely out of sight and out of mind and usually only becomes apparent when something drastic occurs such as forced retirement, ill health or accident, receipt of an inheritance or other change in personal circumstances. Most people are consumed by what happens each day so little wonder that planning for life events, whether they come to pass or not, takes a back seat. More than ever, we’ve become a society dependent on meeting our needs instantaneously or on impulse.
This partly explains why our national debt level is now at record highs and savings are at record lows. Even manufacturers, retailers and industry work on the principal of ‘just in time’ where they buy and sell products based on short term needs.
Sound financial advice
Sound financial advice is almost the opposite experience of all that we’re accustomed to in today’s fast and hectic way of life. The focus of a skilled adviser is to engage their clients in identifying their current circumstances and those things that are most important to them so that they have a good understanding of what they wish to achieve for themselves and their families.
This valuable information is the basis for creating a financial plan which might include specialist strategic advice around taxation, superannuation, retirement income or structuring an insurance programme in the most effective way.
The benefit of the advice process is to create path or direction through clarity and new vision so clients are motivated to achieve their desired outcomes. This is then seen as a financial marathon rather than a sprint.
*Source Investment Trends 2015 Direct Client Report
People generally see the passing of a new year as a significance event. Often it’s at that time when people create their new year’s resolutions. Resolution is another word for goal or objective. As we all know, not too many people are successful in achieving their goals. Why is this?
From my experience, both personally and in business, the primary reasons why objectives are most often not achieved is because:
There are too many resolutions. (We tend to believe that less is more).
They are not clearly defined, including how and when they are to be achieved.
The progress of the objectives are not reviewed regularly.
I feel, of the 3 points listed above, the last one is the most crucial. Reviewing and re-assessing your progress allows you to make changes so you remain on track. Without a doubt, having someone who is willing to help you in the process can make your objectives more meaningful and achievable. Their role is to facilitate and support you on your journey.
The title of this month’s article is a reminder that we are in a new financial year. The issue of goals, objectives and resolutions is just as relevant for a business as for individuals, though, less common to see. I think the reasons for this is that businesses, such as farming enterprises, involve more than one person with the focus is on getting the work done. Longer term planning and setting clear objectives is a much more complex task when there are different generations with competing interests involved in the farm. In many respects, knowing people’s expectations and business objectives is even more important in a family business because they are more willing to collectively work for the benefit of everyone. How do I know this? From our experience of working with farming families over 25 years.
When engaged with people in business, our most important initial role is to understand their circumstances and what’s most important to them and their family. This is how we begin the process of helping them to define their objectives. We learn what drives them. The next questions are “How can they achieve those things, what needs to be done and what is the implementation process?”
As you can see, this is a very different role to an accountant, solicitor, agronomist or bank manager. Yes, we are qualified financial advisers but we really see our main role as facilitators. A facilitator knows their client, what they want to achieve and supports them on their journey.
Perhaps this New Financial Year is an ideal time to review and assess your business in relation to what your family members would like to achieve for themselves.
For a fresh perspective, sign up to our newsletter
This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. We strongly suggest that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances. You should read the PDS and consider whether the product/s is right for you. Past performance is not a reliable indicator of future performance.
Strategic Advice Solutions Pty Ltd (ABN 86 619 221 662) t/as Planning for Prosperity is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd (ABN 47 097 797 049) AFSL and Australian Credit Licence No. 236523