Having clear estate plans in place makes a lot of sense for property investors – and the people who matter most in their lives.
Here’s an interesting fact: Australians are becoming wealthier.
Household wealth reached a whopping $16.5 trillion in the June 2024 quarter. And a key driver of this growth, according to the Australian Bureau of Statistics (ABS), is rising property values1.
It’s not uncommon for Australians to build a thriving property portfolio in order to leave something behind for their adult kids or grandchildren.
Despite the good intentions, none of us can afford to assume our property wealth will simply be handed over to the people we love when we pass away.
To help future-proof your property portfolio, you may want to consider a carefully constructed succession plan.
Let’s take a look at the broader issues to be aware of.
What is estate and succession planning?
Succession planning is all about passing on your assets – and the management of those assets – to the people who matter in your life.
Think of it as creating a strategy for how your property assets will be managed, distributed, and passed on to beneficiaries.
What matters is that your succession plans ensure your property portfolio continues to be secure, well-managed, and well-structured?to?safeguard the legacy of your assets even after you pass away.
Why does succession planning matter?
Property has proven to be a remarkable investment for many Australians.
And it takes dedication to grow a successful long term property portfolio. So, it’s perfectly natural to want your beneficiaries to benefit from your property assets in the way you have.
However, this won’t happen by chance.
In the absence of formal estate and succession plans, transferring property assets to beneficiaries can trigger several potential issues that all investors need to be aware of;
- Significant capital gains tax (CGT) liabilities – our tax laws are complex. While it can be easy to overlook the nuances of capital gains tax legislation, this oversight could leave your beneficiaries facing unexpected tax bills.
- Unexpected inheritance disputes – it’s concerning to think that more than one in two Wills are contested in Australian courts2. Moreover, research3 suggests three in four of these legal claims are successful.
- Erosion of the value of your property portfolio – the combined impact of CGT plus any legal challenges can severely eat away at the value of any property you leave to beneficiaries.
3 key steps to future proof your property portfolio
Having the right succession plan in place doesn’t have to be hard. It’s all about these three main steps:
1. Talk to experienced professionals
Inheritance laws are just as complex as tax laws.
Rather than taking a do-it-yourself approach, it makes a lot more sense to connect with a skilled team of professionals, notably your property advisor, solicitor, accountant and financial advisor (if you use one).
This lets you benefit from holistic advice that addresses everything from tax matters to inheritance laws to draft a watertight succession plan.
2. Have the right structures in place
There is a variety of ways in which you can hold property assets – in your own name, through a self-managed super fund (SMSF), in partnership or via a trust or company.
It is important to get this structure right from the beginning. Shifting a property from, say, your own name to a trust can trigger a CGT event. In most cases, this also causes you to pay stamp duty again, plus other transaction costs.
This highlights the value of speaking with professionals about the structure that is right for you at the start of your property journey.
That said, it’s never too late to speak with experts about the way in which your properties are held.
3. Create a personalised succession plan for your assets?
A formal Will should lie at the heart of your succession plans. Your Will acts as a blueprint for how you would like your estate (assets) distributed.
When it comes to your property portfolio, it’s wise to entrust your Will to a legal professional. This not only ensures your intentions are clearly and accurately communicated, it can also give you peace of mind and make it much harder for someone to contest your final wishes.
Remember, life doesn’t stay still for long, so it’s a good idea to review your Will annually or following any major life changes such as marriage, separation and divorce, the arrival of new children, or when you buy or sell any investment properties noted in your Will.
In this way, your Will accurately reflects your wishes, circumstances, and wealth at any given point.
It can also make sense to discuss the terms of your Will with your beneficiaries. It can work in everyone’s favour to negotiate the terms while you are very much alive, rather than letting the courts battle it out at a later date if your Will is challenged.
The bottom line
Succession planning plays an essential role in protecting and growing your property portfolio. It can work in everyone’s best interests if you plan ahead.
Like to know more? Talk to the team at Momentum Wealth to find how you can build a property portfolio to stand the test of time.
This information is provided for educational purposes only and is not to be considered tax, legal or financial advice. Laws change frequently and what may be suitable for you will depend on your own individual circumstances. You should always discuss your situation with your accountant and/or solicitor and/or financial advisor before making any decisions.
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