Terry Vogiatzis, Founder and Director of Omura Wealth Advisers, was recently named advisor of the year. (Source: LinkedIn/Getty)
More and more Australians are entering retirement and facing big questions about how they handle – and ultimately pass on – their money. Older Australians are being urged to understand all the options available to them to make sure they’re not paying unnecessary tax and not forgetting to do one crucial thing when it comes to their superannuation.
The country is facing the mother of all wealth transfers in the years ahead, as aging Boomers are expected to pass on trillions of dollars in wealth to their children. But the best way to do that can be complex, and there are certain superannuation pitfalls retirees should make sure they avoid.
It’s not fun to think about your impending demise, so it’s not uncommon for people to neglect their estate planning, says Terry Vogiatzis, Founder and Director of Omura Wealth Advisers.
One thing that is often overlooked is super assets which can cause issues later on because superannuation benefits are treated differently from other assets in a deceased estate, which can have significant tax implications for beneficiaries, Vogiatzis explained to Yahoo Finance.
“A lot of people don’t know,” he said.
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Unlike cash, property and your regular share portfolio which can be assigned to go to someone in a will, your super requires a “direct nomination” which also supersedes a will. Without that direction nomination, things can potentially get a bit messy.
“People could put their hand up [to make a claim on it]. And it also creates further complexities from an administration perspective,” Vogiatzis said.
But before it gets to that point, it seriously pays to think about the most tax effective way to pass on your super, which for many Australians will increasingly be a majority of their wealth.
You can nominate your super balance to someone who is considered a dependent, but there is also the definition of a dependent under tax law “which dictates whether or not they’re going to pay tax on the benefit,” Vogiatzis said.
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“An adult child is a super dependent, which means they can receive a benefit, but they’re not tax dependent, so they’re going to pay tax on the benefit.
“So you may want to consider nominating your spouse, giving your adult child your non super benefits.”
As founder of Pivot Wealth and Yahoo Finance contributor Ben Nash has previously written for this masthead, in many cases, a big chunk of inheritances is lost to tax, poor planning, or mistakes that could have easily been avoided.
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If a parent passes on money from their super and their child is not classified as a dependent under the tax rules, they could pay up to 32 per cent on the balance of the super fund.
For example, if they inherit $500,000 in superannuation money, you could be paying tax of up to $160,000.
In most cases, one spouse is going to nominate everything to the other spouse in the event of their passing. At that point, there is a “big tax saving that people forget about,” Vogiatzis said.
“If that person passes away with their super, their children will pay tax on it,” he continued. “[But] in most cases, they’re over 65 which means they can just withdraw everything.”
They can give their children a cash gift which won’t be taxed. “It can an save you hundreds of thousands of dollars… A lot of people don’t know about it.”
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A huge wealth transfer from old to young is slated to take place in the years ahead. (Source: Getty) ·Getty Images
It can be a tricky thing to time, however. While super is in the pension phase there’s no tax payable on the earning of the fund (below $1.9 million) but if you cash it out, then the earnings on that money are now in a taxable environment.
“You don’t want to cash out too early, but that is a strategy,” Vogiatzis said.
The Productivity Commission previously estimated that $3.5 trillion would be passed on from Aussies aged 60 and over by 2050. More recent JBWere figures put the figure at $5.4 trillion over the next 20 years. A good chuck on that will come from superannuation balances, but exactly how it’s passed on will determine how much the ATO ultimately rakes back in.
Financial advisors are licking their lips as more Australians face these difficult decisions, with a recent report by the Super Members Council finding the “general complexity” of the system is leading to “decision paralysis” among retirees.
It comes as the number of retirees in the country is set to double, jumping to about 2.8 million people in the next decade. About 10 years ago, 150,000 people would retire each year. But soon this number will jump to 300,000 per year, a trend described as the “silver tsunami”.
Meanwhile Finder research found 41 per cent of Aussies – equivalent to 8.8 million people – expected to receive an inheritance.
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One in 10 said they were depending on an inheritance to achieve major financial goals like buying a house or retiring, while one in five said it will significantly improve their financial standing but they weren’t solely dependent on it.
Unlike other countries like the UK and US, Australia has no federal inheritance tax.
There have been growing calls to introduce such a regime, with the Australia Institute in August calling for an inheritance tax with the group’s senior economist telling Yahoo Finance it could help bring in as much as $10 billion a year for government services.
However a poll of more than 4,400 Yahoo Finance readers found nearly three quarters of respondents were totally against bringing back any form of inheritance tax.
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Baker McKenzie today announced that leading project finance lawyer Matthias Schemuth has joined the Firm’s Singapore office* as a Principal and Asia Pacific Co-Head of Projects in its Finance & Projects practice, alongside Partner Jon Ornolffson in Tokyo.
Matthias joins the Firm from DLA Piper, bringing more than 20 years of experience in the energy and infrastructure sectors across Asia Pacific. He advises sponsors, developers, commercial banks, multilateral lending agencies, and export credit agencies on the structuring and financing of large-scale projects. His practice also spans international banking, structured commodity and trade finance, with a strong focus on emerging markets. Matthias has been consistently recognised by Chambers Asia Pacific and Who’s Who Legal as a leading project finance practitioner.
James Huang, Managing Principal of Baker McKenzie Wong & Leow in Singapore, said: “We are excited to welcome Matthias to our team. His expertise and proven record in managing teams will be invaluable as we expand our regional and global finance offerings for clients.”
Emmanuel Hadjidakis, Asia Pacific Chair of Baker McKenzie’s Banking & Finance Practice, commented: “Asia Pacific is seeing strong momentum in infrastructure development, energy transition investments, and cross-border project financing, much of it centred in Singapore. Having Matthias on board will further enhance our ability to help clients seize opportunities in the region’s evolving energy and infrastructure markets.”
Steven Sieker, Baker McKenzie’s Asia Chief Executive, added: “Matthias’s appointment underscores Baker McKenzie’s continued commitment to investing in exceptional talent across key markets to support our clients in navigating today’s increasingly complex business and regulatory environment.”
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Matthias said: “I’m thrilled to join Baker McKenzie and contribute to its strong growth in Asia Pacific. The Firm’s global reach and local depth provide an unparalleled platform for delivering innovative projects and financing solutions to clients in this dynamic region.”
With more than 2,700 deal practitioners in more than 40 jurisdictions, Baker McKenzie is a transactional powerhouse. The Firm excels in complex, cross-border transactions; over 65% of our deals are multijurisdictional. The teams are a hybrid of ‘local’ and ‘global’, combining money-market sophistication with local excellence. The Firm’s Banking & Finance lawyers are ranked in more jurisdictions than any other firm by Chambers.
Matthias’s hire continues the expansion of Baker McKenzie’s global team. His joining follows the recent arrivals of Carole Turcotte in Toronto; Tom Oslovar in Palo Alto; Jenny Liu in New York and Palo Alto; Helen Johnson, Mark Thompson, Nick Benson, Kevin Heverin, James Wyatt and Michal Berkner in London; Jan Schubert in Frankfurt; Todd Beauchamp and Charles Weinstein in Washington DC; Dan Ouyang, Winfield Lau, and Ke (Ronnie) Li in Beijing, Shanghai, and Hong Kong; and Alexander Stathopoulos in Singapore.
*Baker McKenzie Wong & Leow is the member firm of Baker McKenzie in Singapore
The Federal Reserve gave investors an early Christmas present by lowering interest rates by 25 basis points (i.e., 0.25%) marking its third rate cut this year. In the past, a change like this in the “long end” of the interest rate yield curve has triggered a predictable, investable pattern. Typically, this pattern would be bearish for finance stocks, particularly banks—investors would buy bank stocks when rates rose and sell them as rates fell….
Dozens of protesters from the “Religious Zionist Reservists Forum” and the “Shared Service Forum” demonstrated Saturday evening outside the home of Finance Minister Bezalel Smotrich in Kedumim.
The protesters arrived with a direct and pointed message, centered on a symbolic “draft order,” calling on Smotrich to “enlist” on behalf of the State of Israel and oppose what they termed the “sham law” being advanced by MK Boaz Bismuth and the Knesset’s haredi parties.
Among the protesters in Kedumim were the parents of Sergeant First Class (res.) Amichai Oster, who fell in battle in Gaza. Amichai grew up in Karnei Shomron and studied at the Shavei Hevron yeshiva.
Protesters held signs reading: “Smotrich, enlist for us,” along with the symbolic “draft order,” calling on him to “enlist for the sake of the State’s security and to save the people’s army – stand against the bill proposed by Bismuth and the haredim!”
Parallel demonstrations were held outside the homes of MK Ohad Tal in Efrat and MK Michal Woldiger in Givat Shmuel.
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Representatives of the “Shared Service Forum” said: “We are members of the public that contributes the most, and we came here to say: Bezalel, without enlistment there will be no victory and no security. Do not abandon our values for the sake of the coalition. The exemption law is a strategic threat, and you bear the responsibility to stop it and lead a real, fair draft plan for a country in which we are all partners. It’s in your hands.”
