You may decide to pass on your wealth while you’re alive, but such a strategy should always be carefully considered and is dependent on your individual circumstances.

Australians median age is rising, therefore, longevity is an important consideration. Will you have enough capital and income to sustain you throughout your lifetime and have sufficient remaining to pass on the desired legacy? Consider, if you live longer, and your medical and aged care costs are higher than anticipated, how will you fund your ongoing living expenses, and whether you can afford to pass on your assets while you are alive.

Relocating to an aged care facility

Recently, a client and her husband relocated to aged care homes. In this particular case, the client had remarried later in life and both she and her husband had grown children. Sadly, a short time later, my client’s husband passed away. At that time, the marital home that was owned as tenants in common was sold and my client received her share of sale proceeds. As my client is a self-funded retiree paying ‘full freight’ for her accommodation and care costs, she has decided that after setting aside enough for her needs during her lifetime, she will pass on her remaining assets now while she is alive. She intends to pass the cash from the sale of the home and the sale of her share portfolio to her four children.

If you do decide to give away assets inter vivos and you are the recipient of Centrelink or Veterans Affairs pensions (or likely to be), gifting your assets above established limits will mean that deprivation rules are applied to any benefits received. That means those assets are counted as belonging to you and this may negatively affect your pension and aged care entitlements. The time frame for deprivation is five years.

In some circumstances, beneficiaries may be ‘at risk’ and in that case, your asset protection strategy may be to pass those assets into a trust.

There may also be costs involved in the transfer, such as capital gains tax and stamp duty. You should also consider the tax and other implications for the beneficiaries of your gift. Make sure you speak to your solicitor, tax adviser, accountant and/or Centrelink before making any decisions.

Generally, key steps in deciding on an inter vivos intergenerational wealth transfer (in other words, giving away your assets while you are living) include determining that your needs can be adequately met in your lifetime, open communication among family and possible beneficiaries, determining what assets will be transferred at what time and to whom and any structures that may be required. Ensuring your estate plan is relevant and up-to-date and the use of testamentary trusts, if required, remain important.

Wanting to help the kids

Another Omniwealth client who is widowed, retired and living comfortably but modestly on the coast in a caravan, enjoying the sun, sustained by her superannuation pension, also wanted to help out the kids. In this case, the client has substantial assets well beyond what she believes she needs in her lifetime and therefore came to us for advice on how to have a sustainable income stream yet pass on assets in the most efficient way possible.

The client has three children and two investment properties two of the children were living in. The outcome of the advice was to assist two of the children to purchase those properties using a combination of vendor and bank finance; and with the capital raised provide a loan to the third child to purchase a home. In this case, the children would not have otherwise been able to purchase homes for many years requiring substantial savings for deposits. The vendor loans provided an income stream to our client and upon her death, the outstanding balance on the loans is to be gifted to the respective child.

Conclusion

The benefit of a sound plan to transfer your wealth is that the assets pass to the desired beneficiary in a way that protects their ultimate financial interest. If substantial assets are to be transferred, either in your lifetime or after, it is important to ensure that the custodians of that wealth you have spent a lifetime building can manage it effectively and enduringly for their benefit and your future generations.

Genene Wilson, senior financial planner, Omniwealth