Get your house in order

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Indepedent financial advisor and retirement planning

It’s surprisingly common for family disputes over wealth to erupt after someone dies. But there are pre-emptive steps you can take to avoid this.

By independent financial planner Tim Mackay.

If you’re like me, then you can‘t help but be intrigued by the Rinehart family saga. Here is a family that seemingly has it all – wealth, power and influence beyond most people’s imaginations. Yet the transfer of wealth between generations has led to a drama of Shakespearian proportions.

As busy professionals it can be all too easy to focus on accumulating wealth, but sometimes we forget about the importance of planning for the transfer of wealth to our children (or grandchildren) when we are gone.

As a start, we should be mindful of the pitfalls highlighted by the Rineharts, by billionaire Richard Pratt and by golfer, Seve Ballesteros.

Lang Hancock’s death in 1992 spawned not one but two of Australia’s most famous disputes. Round one lasted 11 years between Lang’s daughter, Gina Rinehart and his third wife, Rose Porteous. Round two kicked off in 2011 between Gina and three of her children over a family trust – and it’s still raging.

Richard Pratt’s colourful family life meant the transfer of his wealth was never going to be straightforward. The challenge by his young daughter (a child of a Sydney relationship) is ongoing while another by a former mistress was resolved.

Five time golf major winner Seve Ballesteros’ premature death at 54 sparked a fight between his two sons and his nephew (who was also his agent) over Seve’s image rights (left to a charitable foundation controlled by his nephew).

The formula

In each case the facts are complicated and disputed. However, as accountants we love formulae so here’s a summary:

Money + more than one child / dependant + more than one ex/spouse = lengthy, costly legal dispute.

Now apply this formula to your family situation. As a successful professional, we’ll assume you have (or intend to build) wealth so money is a given.

As a parent you hope your kids (and their existing or future spouses) will always see eye-to-eye over money. You know your kids and their spouses better than most so you be the judge (be mindful of the Rineharts as you do so).

Australian statistics show that 33 per cent of marriages end in divorce and then half these people re-marry. So you, or your kids, may have a current and former partner in your life. For some, our simple formula is getting more and more complicated. For others, if your life is simple, you’re laughing.

The combination of the above issues is increasingly resulting in lengthy, costly legal disputes. So how do Australians approach this looming problem?

We bury our heads in the sand with estimates that 60 per cent of us don’t leave a will. Avoiding the problem doesn’t make it go away, it just delays and exacerbates it. Of the remainder, most believe all they need is a basic will.

Professionals who have done some planning may have wills that allow for testamentary trusts. Some may also have one of Australia’s 600,000 family trusts. Others may also have one of Australia’s 458,000 SMSFs (you may be unaware of their importance as an inter-generational wealth transfer tool).

Having a plan

Clearly you need an overarching plan to effectively transfer wealth. Before you involve the lawyers and the billing clock starts ticking, create your own wealth transfer plan.

Document the assets you and your spouse own, what each is worth and in whose name each is held. Include debts secured against those assets. Add insurance policies that should pay out upon your death.

Now determine what you wish to happen to these assets upon your death. In a simple situation, you may wish the assets go to your spouse. Document what you want to happen should both of you die together (Unlikely? How often do you drive in a car together?). Also document what you want to happen when the remaining spouse dies.

If you lack the knowledge or confidence, employ a financial advisor who is an expert across the tax consequences of death on your superannuation, investments, insurance, structures and inter-generational wealth transfer strategies.

Once you have your plan, involve the lawyers to transform your intentions into legal documents. By providing the lawyers, upfront, with a detailed plan, you ensure the solutions they provide are timely and relevant and your legal fees are reduced.

Ask yourself: “If I don’t make it home tonight because of a tragic accident, would my spouse know where to find everything to do with managing my affairs and how to manage them?

A wealth transfer plan cannot prevent all family fights over money. However, it can prevent unnecessary disputes and importantly gives you peace of mind that a structured plan is in place for your family.

 

About Quantum Financial

Quantum Financial is Australia's most awarded financial planning practice. We advise a select group of successful professionals, business owners and jet setting retirees. Our website is here

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