Caring for family with a Will

Few of us like to think about death, let alone plan for it. But far from being morbid, getting your affairs in order and drawing up a Will is one of the kindest and most caring things you can do for your loved ones.

Not only does a Will make your wishes clear but it ensures your family isn’t wrestling with legal red tape at a difficult and emotional time.

Yet despite the advantages, it’s estimated 45 per cent of Australians don’t have a Will.i

Who needs a Will?

The short answer is everyone over 18. Even young adults have assets such as super, personal possessions, possibly a vehicle and some savings.

Once you reach an age where you have a partner and children, along with a home and perhaps other investments, the need for a Will becomes even more pressing.

What can be included in a Will?

Generally you can and should set out where you want your physical assets (property, cars, jewellery, furniture and collectibles), financial investments (bonds, shares, bank savings) and sentimental possessions (family heirlooms) to go.

Generally, assets you jointly own, such as a house bought with your partner, pass automatically to your co-owner. But if you own property under what is called a ‘tenancy in common’ you can distribute your share according to your Will.

Because superannuation is held in trust, it’s treated differently to other assets. The trustee of your super fund has the final say on where your money, formally referred to as a ‘death benefit’, ends up unless it is paid to your estate.

If you wish to be certain your death benefit goes to the person you want it to, you should fill out a ‘Binding Death Benefit Nomination’ form and lodge it with your super fund. You can nominate your estate as the beneficiary and your death benefits, including any life insurance, will be distributed according to your Will.

Individual life insurance payouts don’t automatically go through the policyholder’s Will, but if that’s what you would like you can nominate your estate as the beneficiary.

How watertight are Wills?

If you invest the necessary time, effort and expense into producing a well-drafted Will, you can be more confident your wishes will be respected.

The exception to this rule occurs when it can be argued a Will treats a dependant unfairly. Classic examples are a parent leaving more to one child than another or leaving everything to a new partner and excluding children from a previous marriage.

Assets don’t need to be split equally, especially if one dependant has previously received financial assistance, or has dedicated years to caring for you. But be aware a dependant who feels dudded may successfully contest your Will.

What happens when there’s not a Will?

If you die without a valid Will, legally referred to as dying intestate, the relevant state or territory laws will be left to sort things out.

Someone, typically your next-of-kin, will have to apply for a grant of Letters of Administration. An administrator will then be appointed. They will divide your estate according to set formula, which differs slightly in each state but generally goes to your surviving partner and children.

Even in a best-case scenario, dying intestate may mean one or more of your loved ones will have to go through an arduous bureaucratic process during a traumatic time. In a worst-case scenario, a partner, child or friend may receive far less than you would have wished.

What’s next?

There are essentially four conditions a Will needs to meet:

  • It has to be made by someone over 18 who is mentally competent
  • It has to properly dispose of all assets
  • It needs to be signed and witnessed appropriately
  • It needs to be properly drafted.

While DIY ‘Will kits’ may be better than nothing, if you have substantial assets, a complicated family situation, or you just want peace of mind, you’ll want to engage the services of a trusted solicitor.

A Will is just one part of the estate planning process. If you would like to know more, we can assist you in getting the right advice.

i https://www.tag.nsw.gov.au/wills-faqs.html

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.

A helping hand onto the property ladder

Buying your first home is always a big step, but with property prices rising faster than pay packets taking that first step seems more challenging than ever.

National house prices rose 20 per cent in the year to September, the fastest growth since 1989. Higher prices have also fanned out from capital cities to the regions, as city folk discover the country lifestyle and cheaper housing during the pandemic.i

While this is great news for homeowners and investors, it’s putting home ownership further out of reach for many hopeful first home buyers. The combination of rapid price growth and weak wages growth have pushed up the cost of an average first home deposit from 70 per cent of income to more than 80 per cent.ii

And in another blow to first home buyers, the Australian Prudential Regulation Authority (APRA) has told lenders to assess whether new borrowers can afford their loan at an interest rate at least 3 percentage points higher than the current rate on their home loan. Previously, banks used a 2.5 per cent buffer.iii

So what strategies are available to help younger Australians get a foot on the property ladder?

Government supports

In recent years, the federal government has launched three schemes to close the deposit gap for first home buyers.

The First Home Loan Deposit Scheme (FHLDS) and the New Home Guarantee (NHG) allow eligible first home buyers to purchase a home with a deposit of as little as 5 per cent. While the Family Home Guarantee helps eligible single parents buy a home with an even lower deposit of at least two per cent.

Another way for first home buyers to build a deposit is to contribute voluntary savings to your super account and withdraw up to $30,000 plus investment earnings when you are ready to buy. The First Home Super Saver scheme takes advantage of the low tax super environment and investment returns that have consistently outpaced bank savings accounts.

Rentvesting

If you can’t afford to buy your dream home in a suburb or location you like, “rentvesting” may be worth exploring.

Rentvesting is where you buy property in a location you can afford with good rental yields and capital growth prospects and lease it out, while renting in an area you prefer. Or live with your parents for minimal rent and pay off the mortgage on your rental property even faster.

You can also claim a tax deduction for allowable expenses, depreciation, and interest on the loan for your investment property. The downside is you will be liable for capital gains tax when you sell.

Alternatively, under the six-year rule if you buy and live in the property for at least six months before you rent it out, you will be exempt from capital gains tax on the growth of your investment for up to six years.

Bank of Mum and Dad

It’s not just younger Australians who worry about housing affordability. Their parents often worry just as much. So much so that recent research found the Bank of Mum and Dad is the nation’s ninth biggest mortgage lender.

According to research by Digital Finance Analytics (DFA), 60 per cent of first home buyers are getting help from their parents.iv Parents typically do this by giving their children cash towards the deposit or by going guarantor for the loan.

DFA found the average parental contribution was $92,000, indicating parents may be choosing to help with the deposit. Not only are banks reluctant to lend to first time buyers with less than a 20 per cent deposit, but any less means borrowers must pay lenders mortgage insurance.

Going guarantor

Parents without cash to spare sometimes agree to guarantee their child’s loan by using the equity in their own home as security. This can have the advantage of helping children get into the market sooner, but there are risks.

If the borrower can’t make repayments the guarantor is responsible for the debt, putting their home at risk. To limit this risk, you can choose to guarantee a portion of the loan, so you are only liable for that portion if the borrower defaults. You can also arrange to be released from the loan once the borrower builds up the same portion of equity in their home.

Saving for a first home is a challenge in the current market, but there are strategies to help make your dream a reality. So get in touch if you would like to discuss your options.

i https://www.corelogic.com.au/sites/default/files/2021-09/211001_CoreLogic_HomeValueIndex_Oct21_FINAL.pdf

ii https://theconversation.com/as-home-prices-soar-beyond-reach-we-have-a-government-inquiry-almost-designed-not-to-tell-us-why-168959

iii https://www.apra.gov.au/strengthening-residential-mortgage-lending-assessments

iv https://www.savings.com.au/home-loans/we-need-to-talk-about-the-rise-of-the-bank-of-mum-and-dad

and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.

5 Signs of a well run business

Every small business owner wants their business to thrive, but it can be tough to keep the money coming in the door while staying on top of all the necessary paperwork.

One way to ensure success is to understand the behaviours that separate a well-managed business from one that’s just muddling through.

Surprising as it may sound, the ATO is keen to help small business owners prosper and to share its insights on running a successful business.

Getting the basics right

Since it’s charged with keeping an eye on almost four million Aussie small businesses, the tax regulator is well placed to know what works and what doesn’t when it comes to keeping the doors open.

According to the ATO, when a small business is operating well, it tends to get the basics right. That means keeping good records and having in place effective tools so you can easily reconcile your business’s income and expenses.

1. Keep informed

The ATO finds business owners who are operating effectively take the time to understand their tax and super obligations and to keep on top of any changes affecting their business’s processes.

2. Know your cash flow

Small businesses that are well managed use a cash flow projection or budget tool, as this is the main reason small businesses fail. If you don’t have clear insights into your cash flow position and are not carefully managing the business’s income and expenses, it can be a recipe for trouble.

If you are using cloud-based accounting software, cashflows and budgets can be easily integrated into your everyday reports. Get in touch with us on our contact page if you need any guidance to assist with the implementation of cash flows and budgets in your software.

3. Declare all income

Well-run businesses declare all their income – including any cash income – in their income tax return. Although it’s the ATO’s job to collect tax, it argues small businesses not declaring all their income are heading for trouble down the track.

4. Split your expenses

It’s important to carefully apportion (or split) your business expenses between private and business use.

5. Keep up to date

The final marker of a well-run business is that all its details are up to date – particularly with the ATO. That means keeping your ABN details, contact information and bank details current and easy to find.

Although many of these indicators are straightforward, it’s surprising how many small businesses don’t take these simple actions.

Behaviours to avoid

Just as there are habits that mark a well-run business, there are behaviours common to operations heading for trouble.

Businesses that omit income by depositing it into private accounts or mortgages, or that don’t declare cash sales or record director’s fees correctly, are not on top of things.

The same goes for failing to account correctly for private use of business assets or funds. If you are claiming an excessive business portion of an expense with both personal and business use, it’s a sign of poor management. As is claiming private expenses as a business expense, or not having the necessary records to substantiate your claims.

Making errors because you don’t understand your tax responsibilities is also a sign that things are not being well-run.

Bring in the professionals

With so many rules and regulations, it’s not surprising that business owners may occasionally overlook some of their obligations. There is an easy solution though.

Well-run small businesses seek professional advice when they need it. We can work with you to improve your business overall, not just to meet your tax obligations.

In fact, the ATO’s 2017-18 research and audit work with around 120,000 small businesses indicated that those who have regular contact with a tax professional are more likely to report correctly.

ATO deputy commissioner for small business, Deborah Jenkins recently gave her top three tips for effectively managing your business: maintain good business records, keep an eye on your competition using the ATO’s Small Business Benchmarks and take care of your mental health because running a small business can be very stressful.

If you think your business could do with a financial tune-up, give us a call today on 03 5120 1400.

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.