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The past few decades has seen an enormous build-up of wealth for those in the latter stages of their careers. This has been fuelled by decades of loose monetary settings and the manoeuvring of the large 'baby boomer' generation through their peak earning years. Risky assets such as shares and property have responded favourably to the lowering costs of capital and have provided many retirees with more than enough wealth to traverse their golden years.
So what does one do with their surplus wealth? It is not likely that we can take our wealth to some post-life realm, so any residual wealth will be transferred to others as part of our estate. But should we wait until we have 'moved on' before such a mandatory transfer, or should we look to gift of our wealth sooner.
Firstly, it is important that retirees invest, gift and spend with a level of conservativeness that belies the individual circumstances. Retirement modelling that might suggest a healthy retirement is based on many assumptions, and those assumptions can be proven wrong at times with devastating effect. For example, the age of low interest rates might be coming to an end. Or vice versa, the Japanese experience has shown that an ageing population might still allow for ultra-low, or even negative, interest rates. The future is uncertain and any model will have a level of error.
It can also be important to understand the different consequences for total transferable wealth that might be impacted by tax and social security regulations. Whilst Australia abolished estate taxes long ago, investments that have been concessionally-taxed might have tax consequences upon transfer to others. This can include the family home and superannuation/pension assets. Tax and social security impacts can be different for transfers made whilst living and those after death, and can also depend upon the gift recipient. The use of trusts can help to reduce such impacts, but this can also limit flexibility and increase administration costs.
Lastly, a robust will and superannuation/pension nominations are of critical importance in ensuring that wealth is transferred as desired. Accompanying this should be discussions with potential beneficiaries as to estate wishes. Where tensions or conflicts might arise, the use of trusts or gifts can be a worthwhile consideration. Consulting with estate planning legal experts is also highly prudent.
The only thing that is certain in this world are death and taxes, and it's important we consider both when planning the transfer of wealth to loved ones and cherished causes. The risk of outliving one's wealth might also be a growing concern, especially with the continual scientific endeavour towards health and longevity. Thus, wealth transfer and wealth preservation need to be considered hand-in-hand.
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