02 Newsletter – Summer 2021-2022

Mentor Newsletter Summer
NEWSLETTER
Do you value your assets more than yourself
Do you value your assets more than yourself?

Value is a funny thing. One person’s trash can be another person’s treasure, as the old saying goes. The value we place on something tends to be very individual, and is generally a product of many different factors ranging from cultural background and upbringing to personality type and even life stage.

But as much as the way we view value varies from person to person, there are also some common views that tend to draw us together. According to research commissioned by TAL, Australians are seven times more likely to name their possessions as their most valuable asset, rather than themselves.

The research revealed almost all Australians find it difficult to understand their own value. As a result, we tend to base our self-valuation on the amount we earn and own, while neglecting the intangible things such as the value of the social and emotional contributions we make to the lives of our loved ones.

The things we value will change over the course of our lives

Unsurprisingly, the research showed that throughout every generation, the things we place value on will change as we move through different life stages.

For those in their 20s and 30s, building a rewarding and successful career tends to be a strong focus, whereas those approaching or enjoying retirement tend to be more focused on staying healthy and supporting loved ones with practical tasks.

But where it gets interesting is when we look at how Australians felt their changing views on value over time had impacted the decisions they made along the way.

The long-term impact of our views on value

According to the research, the majority (78%) of Australians undervalue themselves and their contributions to others which over time has led to some regrets, including poor life decisions relating to their long-term wellbeing, as well as actions around protecting what they value.

The common views on value that draw us together

Despite our views on value changing as we move through different life stages, the research also found there are key areas of our lives which we are each underestimating when it comes to understanding our personal value, and this can subsequently have an impact on the choices we make.

In fact, Australians tend to fall into one of four different personal value profile types, which will influence the things they value and choices they make across their lives:

Gregarious Go-Getters (24% of Australians) – these people generally strive to have a successful career and are more likely to undervalue the importance of taking care of their health.

Conscientious Carers (28% of Australians) – these people highly value the emotional support they give to their loved ones but may question the decisions they make in life and sometimes wish they did things differently.

Family-Focused Optimists (32% of Australians) – these people tend to take a family orientated approach to life. They take care of their health but place less importance on their career than other areas of their lives.

Ambitious Organisers (16% of Australians) – these people are more likely to sacrifice their long-term happiness to focus on a successful career and tend to underestimate the value of their emotional support and time to loved ones.

So why does the way we view value matter?

With the research showing that many Australians believe underestimating their own value has led to some regrettable life decisions, it’s important to consider how your present choices may impact you in the future and the things you will come to value over time.

After all, you are your most valuable asset – in every hour of every day, month and year of your life, especially to your loved ones.

Source: TAL

Banner - Will and Estate Planning
Your will and estate plan
What you should know about creating your will and estate plan

If you want to protect your family and assets, it’s worth documenting what you’d like to happen if you can’t make your own decisions later in life or if you pass away.

If you’ve got people in your life who you love and assets you’d like to be distributed in a certain way, you might be at a point where you’re thinking an estate plan would probably make good sense.

What is an estate plan?

An estate plan involves drawing up a will, but also much more. It involves formalising how you want to be looked after (medically and financially) if you’re unable to make your own decisions later in life, as well as documenting how you want your assets to be protected while you’re alive and distributed after you pass away.

How does an estate plan help?

You can make your wishes known

One of the benefits of a solid estate plan is you can formalise your wishes in writing. This can help if someone challenges what you said you wanted after you pass away, or if you’re unable to speak for yourself.

You could minimise disagreements

Unfortunately, disputes can happen when assets need to be distributed among people when no clear guidelines have been set.

Being prepared with an estate plan could go a long way in preventing such disagreements should family members need to divide assets among themselves or make other hard decisions on your behalf.

You may improve tax consequences for your heirs

As the distribution of assets (including your income) can come with different tax obligations, a good estate plan could minimise any tax that your heirs may need to pay.

If they decide to sell something they’ve inherited, for instance, they may need to pay capital gains tax depending on what type of asset it is.

Considerations when creating an estate plan

Do you want your will to be legally binding?

A solicitor or estate planning lawyer can help you draw up a will that is legally binding and covers what you’d like to happen with your assets, children (if you have any) and funeral when you pass away.

It’s important this document is kept up to date and that any changes to your situation (marriage, divorce, separation or otherwise) are accounted for, so those who matter most are taken care of.

While it’s also possible to draw up your own will (there are various kits available online), these may not be adequate in complex situations, which is why engaging an estate planning professional, even if you think your situation is relatively simple, will generally be worthwhile.

Keep in mind, if your will is deemed invalid, your estate will be distributed according to the law in your state, which may not align with your wishes, and claims could be made by unintended recipients.

Who are your nominated super and insurance beneficiaries?

You might assume that how and in what proportions you want your super to be distributed can be included in your will, but this isn’t necessarily the case.

You’ll need to nominate your beneficiaries with your super fund and you’ll also want to make sure you’re across how long different nominations are valid for.

If you don’t make a nomination, the super fund trustee could use their discretion to determine who your super money goes to.

Meanwhile, if you have insurance outside of super, you’ll also want to make sure you’ve listed your beneficiaries on your insurance policy and that those beneficiaries are also kept up to date.

Will you appoint an enduring power of attorney to make decisions if you can’t?

There may come a time when you’re unable to make legal or financial decisions on your own because of advanced age or medical issues. Granting power of attorney means you assign someone to make these decisions on your behalf should a situation like this arise.

For this reason, it’s important to choose someone you trust, as they’ll be responsible for looking after your bank accounts, ongoing bills, and even selling your house if you need to move into a care facility.

It’s also worth noting that you may be able to appoint a different type of power of attorney depending on what tasks you’d like this person to carry out on your behalf. For example, you may want your son or daughter to make general lifestyle decisions for you, while you appoint a financial adviser to make financial decisions.

Have you chosen an executor to help carry out your wishes when you’re gone?

Generally, an executor is the person legally in charge of managing and distributing your estate, according to the terms set out in your will, with the assistance of a solicitor.

When you nominate an executor in your will, which your solicitor should also have a copy of, it’s important to let your family know, to avoid disputes after you pass away.

The executor should also have a good understanding of their duties and where your will and other important documents are kept. You may also want to let your family know where this information is stored.

The executor will typically be responsible for things like making funeral arrangements, ensuring your debts are paid and bank accounts closed, and collecting any life insurance.

They’ll also usually need to apply to the court for a grant of probate, which is a legal step that’s required before your estate can be distributed. A grant of probate certifies that your will is valid.

Do you need help with your estate plan?

Estate planning can be a complex process and there could be legal and tax implications if you don’t set things up correctly and understand the fine print.

For these reasons, it’s important to speak to a legal professional and your financial adviser before making any decisions and signing on any dotted lines.

Source: AMP

Banner - Main Residence CGT Exemption
Main Residence CGT Exemption
An overview of the main residence CGT exemption

Generally, a property, including a taxpayer's main residence, ie their family home, is considered to be a Capital Gains Tax (CGT) asset.

When CGT assets are sold, taxpayers may be liable to pay tax on all, or part, of the capital gain. However, tax law provides an exemption for a dwelling that is the taxpayer's main residence, where certain criteria are satisfied.

This exemption means there will generally be no tax liability for the taxpayer upon the sale of the main residence.

To be eligible for the main residence exemption, the following conditions must be satisfied:

  1. the taxpayer is an individual
  2. the taxpayer is an Australian tax resident
  3. the dwelling was the taxpayer's main residence throughout the 'ownership period', and
  4. the dwelling was not transferred to the taxpayer as a beneficiary in, or as the trustee of, a deceased estate.

Is a dwelling a main residence?

A number of factors are taken into consideration when determining whether or not a dwelling is the taxpayer's main residence, including:

  1. the length of time the taxpayer has lived in the dwelling
  2. the place of residence of the taxpayer's family
  3. whether the taxpayer's personal belongings are located at the residence
  4. the taxpayer's address on the electoral roll
  5. the address to which the taxpayer's mail is delivered
  6. the connection of gas, telephone or electricity services
  7. the taxpayer's intention in occupying the dwelling

It is important to note that a mere intention to live in a dwelling as your main residence, without actually doing so, is insufficient to be eligible for the exemption – the taxpayer must actually occupy the dwelling.

What happens if there is a delay in the taxpayer moving into the main residence?

In some cases, there may be a gap between when a taxpayer purchases a dwelling that is intended to be their main residence and when they actually occupy the property.

In this instance, the main residence exemption will apply from the date of ownership provided that the dwelling was occupied by the time it was first practicable to do so. Generally, this would be the settlement date of the purchase contract.

A taxpayer may not be able to move into the dwelling upon settlement due to illness or some other unforeseen reason. So long as the taxpayer occupies the dwelling as soon as the cause of the delay no longer exists (eg recovery from illness) then the exemption will most likely still be available from the date the taxpayer acquired ownership.

Note that delaying occupancy due to an existing tenant is not sufficient grounds, and as such, the exemption would not apply from the date of ownership.

Can a taxpayer have more than one main residence?

Where a taxpayer acquires a dwelling that is to become the main residence whilst at the same time still owning an existing main residence, the taxpayer is allowed to treat both dwellings as their main residence for the shorter of:

  1. six months, or
  2. the period between the acquisition of the new residence and disposal of the existing residence.

This exemption on both dwellings will only apply if:

  1. the old dwelling was the taxpayer's main residence for a continuous period of at least three months in the 12 months before it was disposed of
  2. the taxpayer did not use the old dwelling for income-producing purposes in any part of that 12 months when it was not the main residence, and
  3. the new dwelling becomes the taxpayer’s main residence.

If it takes longer than six months to dispose of the old dwelling, the taxpayer may choose to treat it as the main residence in order to obtain a full exemption on this dwelling. This however may impact on the taxpayer’s ability to receive the full exemption on the new main residence when that dwelling is disposed of at some point in the future.

What happens when a taxpayer is absent from their main residence?

Where a main residence is vacated and not rented out (and no other main residence election is made in respect of another property), the property will maintain its exemption status indefinitely.

Where the dwelling is used to produce assessable income when the taxpayer is absent (for example, is rented out), the exemption will apply for a period of up to six years. If the dwelling is re-established as the taxpayer's main residence, another maximum period of six years applies if the dwelling is again vacated.

The taxpayer can only continue to apply the main residence exemption to the vacated property where no other dwelling is treated as a main residence during the period of absence.

Example

Emily has lived in her own house for two years. She is posted overseas for four years, during which period she rents the house. On her return, she lives in the house for two years and is then posted overseas for a further five years. Again, she rents out her house. On her return she sells the house.

Emily can choose to treat her house as her main residence during both periods of absence because each absence is less than six years. She can do this by not including any capital gain or loss in her income tax return for the year in which the house is sold.

If any part of the dwelling was used to produce assessable income (such as a home office) before the taxpayer vacated it, the taxpayer cannot apply the six year rule to that part of the dwelling.

What if a taxpayer and their spouse have different residences?

Only one full main residence is permitted per family. In instances where a couple has more than one dwelling they must choose one of the properties as their main residence.

Where separate dwellings are maintained and both are elected as main residences (one by the taxpayer and the other by the taxpayer’s spouse), special rules will apply and the exemption will be split. This is typically based on the ownership percentages, to determine the extent of the exemption for each dwelling.

Source: Macquarie Group Limited