Should you pass on your inheritance before you die?

In keeping with the current topic of proposed Section 296 tax changes that, if enacted, would apply to retirement balances over $3 million, I expect to see an increase in the number of retirees rethinking how they will use their retirement assets throughout their lives.

This approach is already accelerating in popularity among older Australians; A client of mine in his 90s decided to withdraw assets from his retirement fund and gift them to his children to help minimize potential death benefit taxes when he passed away.

Probably the most controversial caveat regarding living estates is the potential for unfair division among heirs. If not carefully considered, this can lead to family disputes and will disputes when the giver dies.

Like any method of financial planning, deciding whether a living legacy is right for you and your family requires a careful, measured approach. To help you decide whether a living legacy is your best option, here are some points I would encourage people to explore with their financial planners.

How can you help ensure protection when giving gifts?

Any direct gift in which the donor transfers only cash or property may provide immediate benefits but introduces the possibility of losing control after the transfer. I constantly remind my clients to only give what you can truly afford; Once gifted, it is almost impossible to take it back.

If a significant sum is involved, it is always wise to formalize the process with appropriate documentation, such as a loan agreement, to keep the money within the family. This also serves to protect both parties from relationship breakdown, creditors or professional indemnity issues.

Another approach would be to use a discretionary family trust, which allows flexible distribution of funds and protection of assets. Alternatively, a will comes into play in the event of death upon will, providing tax efficiency and control.

If you decide that a transfer from your retirement fund is the best choice for you, consider whether you meet the release requirement.

If you are in retirement, funds can be withdrawn tax-free during your lifetime; So remember, once money is released from your retirement account, you won’t be able to contribute to your retirement benefit again unless you meet certain conditional criteria.

For retirees contemplating a legacy that extends beyond their own heirs, philanthropic strategies during succession planning are also growing in popularity, allowing people to create a more lasting and meaningful legacy.

With all these options available, one thing to keep in mind with any approach to living inheritance is capital gains tax, which can be triggered by a change in ownership of any assets following the transfer.

If the saying “the first generation makes it, the second generation spends it, the third generation screws it up” is true, I would like to give one last piece of advice; Think beyond existing beneficiaries.

When a gifting strategy is developed with multiple generations in mind, family wealth is more likely to last longer, allowing the family to take a meaningful approach to distributing their wealth and working to help close the wealth gap for future generations.

Grace Bacon He is a director of RSM Financial Services Australia (AFSL 238 282) and advises clients on: wealth management, retirement planning and succession planning.

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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