The value of obtaining financial advice is not necessarily all about the investment returns achieved on portfolios.
The system of retirement planning, superannuation and estate planning in Australia is complex and we were reminded of this recently with a client scenario that highlighted the hidden value of timely financial advice.
In the true case study below, that tax savings of around $20,000 per annum for the next several years are real, although naturally any personal details of the clients have been changed to protect their privacy.
Sadly, the wife of a couple passed away mid-2019 leaving her husband and 2 children behind. They had been clients of ours for several years.
The wife herself had received, through an inheritance from her father, a share portfolio that she held until her own passing. The portfolio held very significant capital gains across several listed investments in both her pension account and investment account.
In 2017, the Federal government introduced new superannuation legislation- a $1.6M transitional cap for pension accounts; this in turn had flow on effects when it came to superannuation and estate planning.
In light of this, we updated their superannuation nominations. A death benefit nomination provides the trustee of the pension with guidance on how to administer the pension after death. We could see that reversionary pensions to and from husband and wife could benefit them through significant tax savings when the first spouse passed away.
The mechanism helped ensure that the wife’s pension income stream continued as a tax free income for the husband and avoided unnecessary future taxes from the pension account being paid out as a lump sum and being subject to personal income tax for all future years to come.
When the family came to see us for guidance, we provided them an outline of the investments and more importantly provided them with key information about the reversionary nomination that had been established to help them through the probate process.
A few months later the son came back with a query. As they were progressing through with the finalisation of the application for probate, their solicitor completed forms for the husband to sign, one of which was to transfer the balance in the pension account into the husband’s cheque account. ❌
Thankfully, the son stopped this process in its tracks remembering our discussion about a reversionary pension.
The reversionary pension, guidance and open communication with the family helped them save a possible tax bill of over $20,000 in the first year* and most likely similar amounts in the years to follow. ✔
In addition, as the husband was the primary beneficiary to the wife’s estate, he also stood to inherit the assets in her investment portfolio without them being sold and triggering capital gains tax. We had hoped the solicitor didn’t also suggest cashing this portfolio out too!
As financial markets gyrate with all the uncertainties in this current climate, we aim to provide certainty and security in other areas requiring advice that are just as, if not more, important than searching for the next Afterpay.
This was just one example of the value that financial advice can add to your family outcomes.
If you are uncertain of your current arrangements or would like them reviewed please do not hesitate to contact us at email@example.com or contact your Sovereign Wealth adviser.
*Investment portfolio value earning 5% taxed at the marginal personal tax rate.
Disclosure Statement: This communication has been approved and issued by Sovereign Wealth Partners Pty Ltd ABN 18 607 071 367 Corporate Authorised Representative (No. 001233909) of Sovereign Capital Pty Ltd ABN 44 164 127 833, AFSL 456235.
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