Many Australians are not aware of estate planning and how inheritance works. Here is one of many stories that I come across.
It was the overwhelming silence that hit Judy, the first time she visited her family home after her mother’s passing, and with that thought, the slow, deepening realisation that she was going to have to cope with a lot more than the heart-breaking grief.
As she sat alone, surrounded by the possessions her mother had accumulated during her long, happy life, Judy felt completely lost as to how she was going to deal with packing up her mother’s house, much less sorting through the other assets.
You’re not alone
Judy of course is not alone. More than $120 billion in assets were inherited by family members during 2018 and the Productivity Commission believes Australian inheritance from estate planning is set to double to $224 billion by the year 2050.
Judy found herself at the office of her mother’s solicitor a few weeks later to get help with the inheritance and estate planning.
They began by going through her mother’s Will and setting in motion the legal requirements to close her mother’s bank accounts and credit cards and so slowly, settle her mother’s Estate.
As an only child, Judy’s mother had left her everything, so at least there were no issues surrounding the Will and what would happen next, but Judy was clearly lost, which prompted her mother’s solicitor to reach out to her.
“As terrible as today is, every day will slowly get better until there comes a day when you will think of your mother and be filled with happy memories,” he said. “She was so proud of you, she would really want you to make the most of this inheritance, so let’s make sure you do.”
The solicitor’s advice
He then suggested three things.
Make a list of what needed to be done, work through that list as slowly or as quickly as felt right for Judy and then, he recommended a caring financial planner and accountant who could help with the rest.
As Judy progressed along this journey, she learnt she would inherit her mother’s Estate tax-free and that she had two years to sort through her mother’s assets, sell what needed to be sold and transfer other assets to her name.
Once this time passed, transferring assets would ‘trigger’ a capital gains event and she would have to pay tax on any gains in the value of assets that would be transferred after that time.
The accountant and financial adviser’s advice
Her new accountant and financial adviser walked her through what had to be done.
The biggest asset was her mother’s home. As Judy had her own home and didn’t want to move, it needed to be sold. The thought of keeping it and renting it out just seemed too painful and full of complications.
During one of their early meetings, Judy said in a guilty voice that she would like to use some of the money left to her to buy a new car and asked if that would be ok. Her accountant thought that was a very good idea and even suggested Judy go on a short holiday just to clear her mind.
It would help her prioritise what she wanted to do long term with the money from the sale of her mother’s home and the other assets left to Judy. It was good advice. Judy needed time to think things through.
The result
When she returned from her break, with her accountant’s help, she developed a strategy. She would use most of the cash from the sale of her mother’s home to pay out her own mortgage. Judy knew her mother would be very pleased with this decision.
After paying for her new car, Judy decided the rest of the money would slowly be moved into her superannuation account, when and how the contribution laws allowed, and where it could sit in a tax benign environment building to secure her future.
And slowly, she started to focus more on the happy memories she had of her mother.
What you can do
Estate planning is a team effort. For more information, please speak with your Accountant, Solicitor and as a financial advisor myself, give me a call to see how I can help you.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
