Law Talks Episode: Early Inheritance

Robyn: Good morning and welcome to Law Talks here on 4CRB and today we have joining us from Attwood Marshall Lawyers, Wills and Estate Associate, Natalie Comerford. Thanks for joining us today, Natalie.

Natalie: Thanks for having me.

Robyn: Well, today we’re going to discuss the concept of early inheritance or dying with zero. This is something that seems more common among families today and as an estate planning lawyer, what have you noticed about attitudes towards early inheritance and gifting assets or money away before people die?

Natalie: We’re definitely seeing a rise in clients who are gifting assets to their children or grandchildren while they’re alive.

So, it’s not uncommon for clients to mention that they plan to give away smaller, sentimental items such as jewellery to their loved ones prior to their death. And we see a lot of this being done before transitioning into care facilities, or as people get older, they can no longer wear the special pieces, so, they prefer to see them on the next generation to benefit.

So, what I’ve noticed of late is we are seeing a lot more people transferring larger sums of money over to their children to assist them with like home deposits or to pay off a mortgage. It’s said that we’re on the cusp of the largest transfer of intergenerational wealth in history.

With soaring property prices and stock values, it’s expected that the baby boomers will be passing trillions of dollars over the coming decades to family.  So, interestingly, there was a survey conducted by Finder that found more than one in three participants expect to receive an inheritance over the coming decades. And surprisingly 40 percent of the participants admitted that they’d prefer to receive their inheritance early while their relatives are still alive. Wouldn’t we all?

So, it’s great that families are in positions to be able to help the next generation out financially. Especially at a time that property prices are so high. But I cannot stress enough how important it is to receive both financial and legal advice before taking this step, just to avoid any unplanned consequences.

Robyn: So, Natalie, what are some of the benefits of early gifting? 

Natalie: Well, an immediate benefit is that you get to see your children benefit from the gifts, and share in that, whether it’s, you know, purchasing a car or home or funding their education. It’s, you know, good to know that you’re giving support when it’s needed.

You can help your children when they need it the most. Given that the average age for children to inherit from their parents is between, like, 50 and 59 years old, this is often a time when they don’t need as much financial support anymore, and I mean, as probate is becoming more difficult to obtain in some states, sometimes it can save the estate a lot of money if smaller gifts are taken care of while the testator is alive.

Robyn: Okay, so there’s always a yin and a yang. What are some of the cons of early gifting? 

Natalie: So, we, generally, we don’t know how long we’re going to live for. So, if you spend your assets too quickly, or you give them away, you might not have enough for your own needs later in life, such as, something unexpected, if you need to transition into aged care, or if your health declines.

Something families almost never consider is the potential disputes that can arise. Early gifting can cause resentment among siblings and other family members. It can complicate relationships, especially if gifts given are not equal. And it can also create expectations which can result in resentment if those expectations are not met.

So, you need to give consideration to Centrelink. So, there are rules to prevent people from gifting assets to qualify for the age pension. There are limits on how much you can gift annually and over a five-year period, and any excess of those limits can potentially affect your pension. We strongly recommend obtaining financial advice before even considering gifting money early.

And alright, you also need to consider the risks of divorce and other factors, such as if your child could lose the asset to the creditors, should they become bankrupt. For example, you may give an asset to a child who’s in a relationship, such as a large sum of money for them to purchase a property.

If that child’s in a relationship and purchases the property together with their spouse or partner, it could be lost to a property settlement should that relationship come to an end.  There are a lot of factors, both financial and legal, that need to be contemplated so you can make an informed decision if this is right for you or not.

Robyn: Yeah, so what should people bear in mind if they intend to gift money or assets to their loved ones before they die? 

Natalie: Well, firstly, if you plan to die with zero, consulting an experienced estate planning lawyer can help you ensure that your strategy aligns with your financial goal, your legal obligations, and your future needs.

So, there may be alternative strategies to consider other than simply gifting an asset up front, like giving an inheritance as a loan instead of an outright gift, and this can avoid complications in certain circumstances. It’s vital to remember that estate planning is also more than just writing your will and dealing with physical assets.

It also includes preparing for the unexpected, managing assets that fall outside of your estate which people often overlook.

Robyn: So, even if someone feels they won’t own enough when they die to warrant writing a will, what other aspects of estate planning should people be aware of that will impact the decisions that they’re making?

Natalie: Well, in addition to writing a will to deal with the assets you’ve worked hard for and accumulated during your life, everyone should also have an enduring power of attorney and superannuation death benefit nominations in place. So, I just want to highlight these two aspects of planning as, as they’re just as important as a will.

And even if you plan to leave nothing behind, they’re still essential. 

When it comes to Enduring Powers of Attorney, we often see people do these at the same time as their wills. Sometimes they come in with the intention and are already aware of the benefits of having one in place. Usually, we see this if a family’s had a bad experience with one of their own parents and they want to ensure the same thing doesn’t happen to them.

Oftentimes it’s new information for clients and when we talk about it, it’s the first time they’re learning about the benefits of having an enduring power of attorney. So regardless, everyone needs a power of attorney. I’ve been asked many a time, which is more important, the will or the power of attorney. And the answer is they’re both as equally as important as each other. The will is essential for that unavoidable event, the end of life. And the power of attorney is specifically for while you’re alive. And it will give someone the power to manage your financial and personal affairs on your behalf in the event you’re not able to do so yourself.

So, these documents are vital to give clear instructions to your chosen representatives. And again, these are legal instruments that carry a lot of importance. They need to be done correctly. We see so many families ending up in trouble because they haven’t been done correctly. And usually this is discovered at a time when the principal, that’s the person putting the document in place, has lost capacity. Unfortunately, at that point, it takes a court to sort out the dilemma, which is costly and time consuming.

Robyn: So, Natalie, going back to the early inheritance and parents gifting their children at least part of their inheritance early, can this be done through an enduring power of attorney?

Natalie: That’s an interesting question. So, there’s restrictions around what an attorney under an enduring power of attorney can do. When it comes to dealing with the principal’s money, and this is where clients can benefit from seeking advice from an experienced estate planning lawyer. We can expand the basic document to encompass certain situations, just like the attorney being able to gift themselves money, if that’s what the principal’s intentions are. So, each case is unique and like Wills, no two families are the same. It really is a document that needs to be individualized to the user’s preferences and needs.

Robyn: What are some of the ways you can expand the limits of an enduring power of attorney?

Natalie: Well, as mentioned before, the restrictions, placed on an attorney through the legislation are there to ensure that their power is not absolute.

Sometimes we need to navigate these restrictions carefully. So, they don’t prevent or fetter the attorney’s power to do something that’s essential for the principle. Like entering into conflict transactions is one that we see very often. It’s a difficult concept for most to get their head around, but it can make a huge difference for couples who are acting as attorneys for each other.

So, dealing with super is another one that is usually forgotten about and these days it’s vital to give consideration to digital assets as this falls outside the scope of the basic instrument. It’s all about individualizing to meet the needs of the individual and ensure that the document is going to work practically and in real life.

Robyn: Final takeaway, Natalie.

Natalie: All right. Well, whether you intend to leave behind significant wealth or you plan to gift your hard-earned assets during your lifetime, it’s crucial to consult with an estate planning lawyer. They can help ensure your intentions are fulfilled without resulting in family disputes or unintended consequences.

They can provide legal advice for those planning to gift their assets during their lifetime. This is important because, like eligible people may contest your will after your death and in some jurisdictions, like New South Wales, for example, these assets can be clawed back into the estate if an eligible person has not been provided for and applies for a family provision claim.

So, since everyone’s family structure, asset pool, and personal wishes are unique, personalized advice is invaluable. An estate planning lawyer can help you create a tailored plan to give effect to your wishes and advise on the most cost-effective ways to achieve those wishes.

Robyn: Yeah, fantastic advice as usual, Natalie.

And as you say, it’s so important to seek the professional advice because you might be thinking that you’re solving one problem and creating consequences somewhere else.

Natalie: That’s right.

Robyn: Nice to chat with you today, Natalie.

Natalie: Thank you for having me.

Robyn: You’ve been listening to Law Talks here on 4CRB, which you can hear every Friday morning from nine o’clock.