Protecting generational wealth

When planning to pass your assets onto your descendants, there are many things to consider. One of the most common questions people ask is: How do we protect our wealth so it ends up where we want it to go?

Before we delve into how to protect your wealth, we first need to look at what the common risks are so you understand what you are protecting your assets against.

There are three main risks:

1. Greed

People’s perception of wealth, entitlement, and who ‘deserves’ what, is as varied as snowflakes – so leaving the distribution of assets ‘up to the discretion’ of an individual or group of individuals can look like an uncomplicated, economical and ‘nice’ way to pass on your wealth. However, this can go very wrong very quickly and result in the loss of the majority of the assets to legal fees, and taxes. The very opposite of what the initial asset holders intended.

2. Tax

Understanding how assets are taxed when they are passed from one entity to another is complex and ever-changing. While people might think they are doing the right thing now, they are often unaware of the future implications of how they are structuring their assets and what will happen when they are transferred to a beneficiary.

3. Bankruptcy

A Bankruptcy will jeopardise your assets if they are not properly protected against creditors. Bankruptcy is less of a risk for an asset holder who has small or no business holdings, doesn’t have significant debt, or is not inclined to engage in high-risk investments.

• so understanding what your personal risk-profile is will help you make the right decisions about your succession planning and structure.

Depending on what your specific financial situation is, you will need to protect your assets in different ways against each of the risks.

In practical terms, there are essentially two ways you can secure your assets for future generations.

Superannuation

The first is to put assets into a superannuation fund which means you get the benefit of the fund while you are alive and then it is dissolved and passed onto your beneficiaries when you die.

Superannuation is considered a stand alone entity and as such will not be affected by a bankruptcy, whereas all other assets – shares, cash, and property – are vulnerable and may be liquidated to pay creditors in the event of you being declared bankrupt.

Superannuation is considered to be ‘outside’ of a will and subject to superannuation death benefit rules – which simply means you are able to nominate specific people (as outlined in the SIS Act) who will get the assets from the superfund. If there is no entity nominated, the fund is then included in the deceased estate’s will – and therefore potentially at risk of being challenged.

Trusts

The second is to put your assets into a trust (most often a discretionary family trust) and define the terms and entities the assets will be given to. Trusts do offer some degree of protection, however, it is essential you get advice from your tax agent, a wills and trusts lawyer, and a financial advisor. Depending on your specific circumstances, there are many things you can do to increase protection, decrease risk, and minimise tax.

Paradoxically, the less assets you have the simpler it is to protect them. Once your assets exceed the standard share portfolio in a superfund and the family home, and you move into independent investment portfolios, business holdings, property portfolios and art collections, things start to get more complex. In these situations, it is even more essential to have your trusted trio of specialists – tax agent, legal counsel and financial advisor – as you will be undertaking a balancing act between security, tax minimisation and ensuring your wishes are carried out as you want them to be.

Fiducian’s financial planners have decades of experience helping people navigate their succession planning and ensuring they make the best decisions possible. Contact us today for a free consultation and see how you can protect your wealth.

For more information and tips on financial planning, book a free consultation with Fiducian Financial Services.

Source: www.fiducian.com.au

Lindale Insurances Pty Ltd ATF Lindale Insurances Trust ABN 27 027 421 832 is a Franchisee of Fiducian Financial Services Pty Ltd, Level 4, 1 York Street, Sydney NSW 2000. AFSL 231103 ABN 46 094 765 134.

The information (including taxation) provided on this website is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.

Disclaimer: The views expressed in this publication are solely those of the author; they are not reflective or indicative of Fiducian. They cannot be reproduced in any form without the express written consent of the author.