Preparing inheritances with terminal cancer, inheritance and investment properties, and insurance bonds for grandchildren
I am 58 years old, single, and living with a cancer diagnosis that took me nearly five years. I had no symptoms of cancer and felt fine.I am financially secure with a small and manageable mortgage.
There are a few items I’d like to tick off my travel list, but I enjoy my job and have very few outside interests to pursue if I retire. At this stage, my priority is to maximize the inheritance that my two adult children will receive. Any advice?
I’m sorry to hear about your diagnosis, but I appreciate the thought you’ve put into what’s important to you in the coming years and the realization that you want to continue working and leaving a legacy for your children.
My first thought would be to understand what life insurance you have through superannuation (and outside superannuation, if you have any) and when it can be claimed. With a terminal diagnosis, you can make a claim now and that could be money you can save for your children. If the coverage must be retained for the time being, make sure that the premiums are up to date and there is no risk of them lapsing.
If your pension passes to your children, some death benefit tax will be payable; so when your health deteriorates significantly, you may want to consider withdrawing those savings and setting them aside. Your earnings will be taxable to you later, so you don’t want to do this too early.
Talk to your financial planner about whether an insurance bond might be valuable in your situation. With your children as beneficiaries, this can be a way to invest in growth assets that can pass to them without any tax consequences in the event of your death.
Finally, if you haven’t already, chat with your lawyer and make sure your estate planning arrangements are on track. A testamentary trust for each of your children can be valuable in protecting what you pass on.
My husband just inherited $200,000. We have two investment properties, each with a mortgage. Should we pay off a mortgage in full, or split the inheritance and pay something to both? Our house has no debt.
I would take a step back here. Your options are much broader than debt reduction. Depending on the cash flow situation of the properties, it may be better for one or both of you to contribute this money to your retirement fund.
Alternatively, if the investment properties are cash flow neutral or positive and you are particularly keen on real estate as an asset class, this money could potentially be used as a deposit for a third investment property.
Is there a financial product that will allow us to set aside money (around birthdays and Christmas) instead of spending it on our grandchildren’s toys and belongings? We want the funds to be growth-oriented (can be shares or managed funds) and be transferred to each grandchild when they are 18 years old. We would prefer the funds to be held by a third party, preferably with minimal tax consequences for grandparents or grandchildren.
Yes, insurance bonds can meet your needs here. There are versions that allow you to select a child as the beneficiary and set a vesting age (e.g. 18), whereupon the investment is transferred to the child.
All tax liabilities are paid under the bond, as with super, so you don’t need to include any gains on your tax returns.
Paul Benson is a Certified Financial Planner. Guidance Financial Services. He is hosting Financial Autonomy podcast. Questions: paul@financialautonomy.com.au
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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Paul Benson is a Certified Financial Planner and host of the Financial Autonomy podcast.
