Inheritance, estate planning & how Reverse Mortgage can help

Written By Andrew Ford

10 June 2016

According to international research from McRindle Research 86.2 per cent of parents aged 59 to 96 expect to leave something for their children, while only 44.6 per cent of the children aged 40 to 60 thought that they would receive an inheritance.

An interesting part of the study cited the two generations’ motivation for inheritance intentions and expectations. Parents often feel obligated to leave something for their children, despite increasingly having provided financial support to children through education, housing and other means.

This disconnect in inheritance expectations between two generations gets more complicated when financial concerns related to ageing are factored in. Sometimes, the problem is not the lack of money or assets, but the mishandling of it. The household net worth of the older Australian generation is higher than ever —with an average of $2 million, according to Mark McCrindle of McCrindle Research. This means that even if $1 million is spent for aged care, medication, or retirement lifestyle, there could still be $1 million remaining in the estate.

This creates both opportunities and potential issues for family members, which need to be carefully managed by all parties. On the positive side, elderly parents now very often have substantial property wealth with which to support themselves in old age. Selling the family home is a common method of equity release for these purposes. However, many retirees wish to stay in the home and come to depend instead on the ‘cash’ support of their adult children. Unfortunately this arrangement is often a source of tension in families.

A Reverse Mortgage can provide a useful solution in these circumstances. A Reverse Mortgage loan is an efficient way to access equity (without selling the home), in order to fund retirement and ageing costs.  It can provide the added benefit of removing the financial pressure on adult children.

Another set of potential problems around inheritance arises when there is a lack of estate planning. If there is no Will or active financial management of the assets, the intentions of the elderly parent can be disputed and significant additional taxes or time delay may apply.  An effective estate plan can help minimise tax payable and ensure investments are passed on to beneficiaries without delay or conflict. And when it comes to paying for very substantial aged care costs - which can affect inheritance - a Reverse Mortgage can again provide a useful funding alternative.

It’s clear that passing wealth to the next generation is often complex, and if not managed well, may lead to costly mistakes. A financial adviser and a solicitor are best placed to manage a Will, Power of Attorney, testamentary trust and the tax implications to ensure your assets are protected and used according to your wishes.

Reverse Mortgages can also play an important role for both generations by providing a funding alternative that works with estate planning objectives, allows retention of ownership of the family home, and facilitates the inheritance wishes of all parties.

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Andrew Ford, CEO, Heartland Seniors Finance

Andrew Ford is the CEO of Heartland Seniors Finance and has been with the Heartland group for over 15 years. He is passionate about reverse mortgages and the difference it can make to the lives of seniors.

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