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Case Study: An Early Inheritance Strategy

As part of WLM's financial planning philosophy, we sit with clients and tailor our advice to their individual goals. Part of this process is to work out their cashflow needs to live comfortably in retirement and how much they need as an asset base to meet that cashflow requirement over their expected lifetime. Hopefully (if they meet with us early enough), they have accumulated excess assets to live off. This is when we start to discuss early inheritance strategies with clients.

An "early inheritance" typically refers to receiving an inheritance from a family member or relative before their passing. In most cases, inheritances are received after the death of the person leaving the assets or property. However, in some situations, individuals may choose to transfer assets or wealth to their heirs or beneficiaries during their lifetime.

I recently discussed this strategy with one of my clients. For privacy reasons, we will call them Frank and Betty.

Frank and Betty had built up a substantial direct share portfolio over their lifetime. Now in their late 80's, this portfolio was generation dividends (income) in excess of $250,000 per annum. Substantially more than their income needs!

Frank and Betty have two children in their 60's. Based on our discussion, Frank and Betty decided to transfer (early inheritance) $440,000 to each child so they could top up their superannuation accounts before retirement. Rather than treating this early inheritance as a gift, we organised a formal loan agreement between the parents and the children, protecting the payment from unexpected marriage breakdown.

Frank and Betty loved this strategy as they could see their children enjoy the fruits of their hard work.

Some benefits of an early inheritance strategy:

  1. Help when it's needed
  2. Assets bypass probate
  3. Potentially reduce estate taxes

Some drawbacks of an early inheritance strategy:

  1. You may outlive your expectations
  2. May create family drama

It's important to note that early inheritance can have both financial and emotional implications. Family dynamics, fairness, and potential conflicts among children should be carefully considered. Additionally, legal and tax implications must be thoroughly examined.

How can WLM help?

The most important thing to do before deciding to let your children have their inheritance early is to work out whether you will be leaving yourself with enough to live on and enjoy a decent lifestyle for the rest of your life. WLM Financial Services are experts at providing retirement planning advice and can help you navigate through your retirement, cashflow and early inheritance decisions. Contact us for a discussion.

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