Play 4CRB Radio Segment: ‘Honouring Your Legacy’ with Troy Theobald of RFS Advice

‘Honouring Your Legacy’ with Troy Theobald of RFS Advice

Someone is sitting in the shade today because someone planted a tree a long time ago. (Warren Buffet)

For the vast majority of Australians, you start with a bank account, which you put your first pay check into and spend your whole life paying down debt and subsequently accumulating assets.

Finally, at sixty-five – or older – you have a debt free home and some savings that will supplement your pension to improve your standard of living in retirement.

Have you ever wondered how it is that you have worked hard your whole life and been well paid but there seems to be a group of individuals and families that are miles in front of you?

Do they have a secret?

Not everyone starts from the same spot.  There are some families that are starting well down the track, before the gun has even gone off.

They get to build on the wealth of previous generations and establish a legacy for the next.

Can that be you and your family?

It requires patience and planning but it is a possibility for any family who has accumulated assets throughout their lifetime.  The key is keeping the asset base together.

Consider this; most Australians have a debt free home that they live in right up until they make that last stop.  That means that ignoring any other assets, the estate is worth a minimum of $600,000 but can be well in excess of several million dollars.

Why with that building block, do more families not have substantial wealth to pass onto the next generation?

  • Firstly, longevity is a relatively new thing. Two world wars and poorer health conditions meant that if you were born in the early 1900’s your life expectancy was only in the mid 50’s. If you are born now it is closer to 90! The less time you have to accumulate wealth, the smaller the legacy.
  • Secondly, we are not very good at keeping the capital together from generation to generation and time is needed to accumulate real wealth.

The power of compounding

We need to keep the capital together and let it grow.

If you invested $1million and let it grow at 7.2% for 10 years it would double to around $2million dollars.  If you let it grow another ten years after that it could accumulate to over $4million.

7.2% net growth is a reasonable target to aspire to. Yes, you have inflation eroding some purchasing power, but it would still be a very useful amount of money and $4million even conservatively should be able to create an income stream of between 4 and 5% for your beneficiaries.  Approximately $160,000 to $200,000 in income a year, every year, without eroding the capital and the opportunity to invest the balance.

Could that sort of income give your kids, grandkids and great grandkids a flying start?

What would you like to do for your family?

Picture yourself at 55 years old receiving $500,000 from your parents. 

You are one of three children and your parent’s estate consisted of their beachside unit, an investment property and the balance of their investment portfolio adding up to $1.65million.

Your parents worked hard all their lives, brought up three children who now have children of their own, paid down debt and invested well.  They had a good lifestyle in retirement, enjoyed and spoiled their grandchildren (whenever possible) and will be badly missed.

  • They had an appropriately structured estate plan that has ensured you and your two siblings –with whom you get along famously – will receive your share of the estate with a minimum of tax consequences. Their legacy to you is protected from the family law courts and any bankruptcy laws.
  • You and your siblings were well aware of your parents’ wishes and the fact that your sister received a larger portion of the estate than you and your brother.  Her increased portion was to help support your sister with her handicapped son.
  • You have received your portion of the estate in a Testamentary Trust, which will allow you to flow income to the beneficiaries as tax effectively as possible.
  • Your own marriage is rock solid and your partner is aware that your parents want to provide a legacy for you and your children.

You invest the $500,000 within the trust and it generates both income and growth. Every six months you pay off a portion of your children’s university debts from the income generated by the trust and remind them, that this is their grandparent’s legacy to them.

As you and your partner are well established you do not touch the capital or its growth and ten years later, the assets have grown to $900,000. This is what estate planning can look like but all too often it is not the case!

You have your own investment portfolio and superannuation assets and have now paid down all of your debts and can start your retirement with little need to dip into your parent’s legacy which continues to grow. 

Sounds a little Utopian?  Yes, but it shouldn’t be?

Let’s consider what is more likely to have happened.

Your surviving parent has died and you and your siblings are understandably emotionally stressed.

The executor has advised you your parents have left $650,000 to your sister and only $500,000 each to you and your brother. This is the first you have heard of it and it has caused a fall out between your brother and your sister as he is struggling financially. 

The estate is being paid directly to each of the children, which means your brother’s creditors can now demand his share of the estate. 

Because you are a ‘non-dependent’ under the ‘SIS’ rules, the portion of the Superannuation assets that you are receiving will be taxed at 15% plus the Medicare levy.

Lastly you hadn’t mentioned to your parents that you and your partner had actually separated six months ago.  Their legacy to you will now make up part of the assets to be split with you and your partner in the event of a divorce.

So of the $1.65million of assets your parents have spent their lifetime building, there is a good chance $500k will disappear to creditors, approximately $75k will go to the ATO and at least 50% of your balance to your ex-partner.

The net result to you could be approximately $230k if the divorce is reasonably fair or far less if it is acrimonious.

The tax, included above, your sister would have to pay (approx. $40K) could also have been reduced by accessing a special disability trust for her child.

Intergenerational Wealth Planning

Growth of your family’s wealth is a graceful challenge; even more so is management of the contesting needs of your family’s future generations.

Intergenerational wealth planning offers solutions to achieve long term wealth security, from a family perspective, in the form of:

  • creating and implementing appropriate accumulation strategies and investment structures (e.g. family trusts);
  • ongoing management of your family’s wealth portfolio; and
  • configurations that enable seamless transfer to future generations of the family.

At RFS Advice, we work with many farming families where there is the family farm.  We find that consideration needs to be given if different members want to remain on the land and others do not.  What is fair and what is reasonable?  We work on building investments or non-farm assets to help reduce the burden in this instance.

Let us break this down into net Asset Position for strategies

Group 1 – Homeowner with additional net assets under $500,000:
  • The income for this group is generated from the Government age pension and a possible part self-funded pension.
  • The net assets in this instance will be the home plus any super/savings they have accrued.
  • This group could still have a net asset position well in excess of $1 million as house prices have increased so much in recent times.
Group 2 – Homeowner with additional net assets of around $1 million:
  • The income for this group would be generated from a self-funded pension and possible draw down from other assets.
  • Their portfolio would probably consist of some income producing assets as well as capital assets.
  • There will be net assets of several million dollars.
  • Some different family members may wish to honour a legacy and maintain ownership of some of the assets.
Group 3 – Homeowner with additional net assets well over several million dollars:
  • The income for this group will be a self-funded pension and possible other assets and possible draw down from other assets.
  • They would not be entitled to the Government age pension payment.
  • Their portfolio would probably consist of some income producing assets as well as capital assets.
  • There will be net assets of several million dollars and there will be significant benefits in maintaining the assets and continuing to generate an ongoing income stream.  
  • Some different family members may wish to honour a legacy and maintain ownership of some of the assets.

Planning for the groups:

Group 1

Within this group we would be looking to ensure that you are receiving your maximum Centrelink entitlements and making sure you use these benefits at every opportunity. A large number of people in this group now actually have assets worth well over $1 million dollars and this is usually the home.  Fortunately, under the age pension eligibility tests, the home is not included when assessing entitlements for the age pension. 

There is often a hard choice though in this category as people can find that they are asset rich but income poor.  They may want to access the equity in their home to have additional funds for their retirement.  It can be a difficult decision when it comes to maintaining their home versus selling the home and downsizing to access some of that equity but then potentially losing the age pension as their asset base is now higher under the pension eligibility tests.   

For clients in this group there is a key focus for them on generating retirement income. They need this managed to maximise a part pension and top up their lifestyle.

The legacy in this instance is probably the family home and they will need to focus on maintaining this asset if it is worth a significant value versus a part age pension.

Group 2

At RFS advice we help people in the $1 million and well above this every day. They have a focus on generating an ongoing income, maintaining the legacy and growing wealth for future generations.

We can focus with these clients in generating their ongoing income need to provide for this desired lifestyle.  We then set a focus on maintaining and building the capital base along the way.

Some of these clients will help the kids and grandkids along the way. Others will wish to maintain control of the capital base.

Group 3

We also work with families in group 3 to help manage all of their assets, others we manage some of the assets.  We are finding that a lot of family groups want to know we are here if their health changes and they want someone to take over the decision making and management.

Families in this group may or may not have thought about the compounding of the family legacy. We see these families  on the TV overseas but a lot of Australian households could look at these strategies today. We have built an intergenerational wealth program for just this purpose.

So why doesn’t intergenerational wealth transfer happen? 

We would argue big contributors are:

  • poor intergenerational planning;
  • no planning at all;
  • marriage or family breakup; and/or
  • Poor investment decisions.

If you don’t protect the capital, it is very easy for the next generation to fritter it away and divorces are a very good way of seeing capital leave the family.

Is there a smarter way – Absolutely!

Protecting and Nurturing Intergenerational Wealth

The first step is ensuring you have a ‘regularly updated’ valid Will

Recent studies show that up to 52% of Australians do not have a valid Will (ASIC’s MoneySmart). Arguably this number could be higher as many respondents who have made a Will have not reviewed it for a significant time and it does not reflect their current wishes.

RFS does not provide legal services however we have several Estate Planning specialists that can review your current documentation and, where necessary, refer you to professionals who can ensure your estate is appropriately structured and minimize the risk of your estate being challenged.

How do you build a Legacy for your children and their children?


There are several options but the goal has to be maintaining a reasonable portion of the capital in a structure where access to capital is limited but flexible enough to deal with unforeseen circumstances, e.g. Health or hardship issues.

The children/beneficiaries need to be involved

A well-structured solution can be derailed by beneficiaries who needlessly challenge an estate.  Yes, the estate is your money to do with as you wish however you need to consider all of your potential beneficiaries and deliberately excluding any individuals can lead to unnecessary legal costs and a potential challenge.

By involving your children who in many cases are mature adults with estates of their own, they can be involved in the building of the legacy and raise any issues that need to be accommodated.

The Transition

Many of our clients accumulate significant assets over their working life and, in retirement, our first priority is to help them protect those assets and build a reliable income steam that will support the lifestyle they have visualised. ‘Spending your kid’s inheritance’, better known as the ‘SKI’ club is encouraged!

If we knew the date of our pending demise, it would be a lot simpler but the uncertainty of longevity means we restrain our spending so we do not run out of money and still have somewhere to live.

This means there is usually an estate that needs to be distributed to beneficiaries and this transition of wealth is where poor planning can be very expensive.

Good questions that needs answers are:

  • How do I minimize any tax implications for my beneficiaries when I die?
  • What strategies can I employ to keep assets within my family?
  • How do I protect wealth once it is in my children’s hands from marital issues of their own?
  • How do I instill the same values around hard work and managing money to my children when they inherit these assets?
  • Is there any risks in providing a donating portion of my estate to a charity?

When should I be putting these plans in place?

The short answer is ‘now’

 Life is precious and precarious. A good estate plan will cater for your current financial circumstances, as well as your future, and should be reviewed regularly, as your life changes.

When we are younger, we need personal insurances to provide a legacy (the instant estate) but as we accumulate assets, it is about building them in the right structure and protecting their value in transfer.

“Your estate plan should start well before you have the need for it”

Asset protection and taxation minimisation will help grow your family asset base as well as maximize it in transition.

Hopefully I have pointed out that there are different strategies that can be used. Every family is unique and they all have their own family dynamics.

These are not easy topics. They are not easy decisions.

A no plan approach or poor plan destroys families and estates and hard earned wealth and it is for this reason that we strongly urge people to work with your advice team to put the best plans in place that you can. Hopefully this points out to people that there are a lot of aspects to financial advice and it’s not just about the super or the investment account.  We have our contact forms on our website and if this information has resonated with you or you would like personal advice for your family or help creating a legacy then our team would love to help you out.