Around $10 billion worth of shares, cash and property is bequeathed every month in Australia. Experts weight in on how to manage a windfall.
Already a subscriber?Violette Snow and her partner Brett Morgan are using their inheritances to create a legacy that will continue their shared passion to protect oceans and marine life.
The most popular option was to invest it followed by paying off a mortgage and sharing it with family at 19 per cent. Buying a car, putting it in a term deposit and going on a holiday were the next most popular options.Simon LetchMalissa Tobias, a partner with Perpetual Private says decisions are often influenced by a beneficiaries’ age and how long they want to keep working.
While few people would resent an inheritance, there are practical, legal and emotional issues to be resolved. For some beneficiaries, an inheritance can be a “ball and chain” because of punitive state property taxes.Estates can include multi-million dollar fleets of collector cars, art and furniture and multiple properties. For the beneficiaries of these “treasures”, it can be difficult to devise a strategy for their disposal in a respectful and tax-effective manner.
“A simple strategy for someone who got an inheritance today would be to make a $110,000 contribution before 30 June and another $360,000 after 1 July for a total of $470,000,” Minney says.Mark Heffernan, a partner at Perpetual Private, says investors should be aiming for a diversified portfolio including shares, bonds, real estate, hedge funds, private equity and commodities.
The same lump sum will reduce interest payments by nearly $3000 after one year and nearly $15,000 over five years.“People often ask whether it’s better to invest in property or in their super,” RateCity research director Sally Tindall says. “A deduction can be claimed on the interest for borrowed money used to buy shares or related investments,” Moran says. “Only interest expenses incurred for an income-produced purpose are deductible.”There is no inheritance tax in Australia and generally no capital gains tax on death, according to Mark Chapman, a director of tax specialist H&R Block.There is also usually automatic CGT roll-over relief on the transfer of assets from the deceased to the executor and beneficiary.
“If the asset passes to one of these, CGT will apply as if the asset was sold to the beneficiary at their market value just before death,” says Chapman.Advertisement Testamentary trusts can provide tax benefits and ensure protection of assets from potential creditors, according to Anna Hacker, a client director of Pitcher Partners Advisory.The will sets out the terms of the trust and determines control of the assets. When the will-maker dies, control of assets passes to a trustee subject to the testamentary trust passes to a nominated third-party trustee.
In addition, there is no capital gains tax when assets are transferred from the trustee to a beneficiary.
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