An estate planning case study 2018-01-22T08:14:18+00:00

An estate planning case study

This case study shows how ‘standard’ arrangements can create poor financial outcomes for your loved ones.

Proper estate planning can help maximise the value of your estate you leave behind.

Avoiding taking a hit from the taxman

A common problem with many standard ownership arrangements is that they can trigger ‘worst case scenario’ tax obligations.

Take for example Jim and Jane, a (fictitious) couple in their 80s who own their home as joint tenants.

Unfortunately Jim passes away, and ownership of the home flows to Jane. Jane decides she would like to move to something smaller, so she sells her home for $2m, triggering a capital gains tax event.

She buys a new property for $800,000, and invests the residual funds in a bank account, as she is too old to invest in super. A high rate of tax is payable on the interest earned on her investment, and now with just one tax threshold, she becomes ineligible for the age pension. Jane had wanted to leave as much as she could to her children, and she’s disappointed by how much has been eaten up by taxes. Overall, it’s quite a poor outcome financially.

A better alternative may have been to re-establish ownership of the home as ‘tenants in common’ and to create a testamentary trust prior to Jim’s death. In this situation, the trust would have come into play upon his death. The Trust Deed could have been set up to enable Jane to remain in the home as long as she wished. Then upon its sale, the proceeds could have been distributed within the trust to Jane and her children and grandchildren in a pre-determined proportion. This would have made use of multiple tax thresholds, and reduced the overall amount of tax paid.

It is a complex area and to create the best possible outcomes does require specialist knowledge and skills.

5 Financial works closely with Mike Fitzpatrick, Principal of Clarendene Pty Ltd, and an estate planning lawyer who has substantial experience in this field.

We would be pleased to discuss your requirements with you to help you establish arrangements that best suit your circumstances and goals. Your initial consultation is at no cost or obligation. Contact us today to learn more or to book your complimentary appointment.

[This information is correct at the time of writing. It is of a general nature only and does not take into account your particular circumstances or goals. Please seek professional advice before taking any action.]