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It's a question most of us ask eventually: what happens to our investments when we die?

 

         

The answer often depends on the type of asset you own and the structure through which you own it.

Generally, when you die an executor that you nominate in your will takes control of your assets and has responsibility for distributing them in accordance with your wishes. The executor will normally apply for a court order declaring your will is valid. This court order is called probate.

If you die without a will, or if your executor is unable or unwilling to act, the court will normally appoint an administrator to the estate. The administrator has similar powers to an executor.

Then, they will deal with your assets in accordance with your will, or in accordance with the rules of your state if you didn't leave a will.

Let's look at what happens to your investments one by one:

Real estate

An interest in real estate held in your name alone forms part of your estate and is passed on or sold in accordance with your wishes as set out in your will.

This not necessarily true when you own real estate with someone else.

Jointly owned real estate can be held in one of two ways—as 'joint tenants' or 'tenants in common'. If a tenant in common dies, their interest in the real estate is an asset of their deceased estate and can be passed on to beneficiaries as dictated by their will.1 If they are joint tenants, however, their interest passes directly to the other joint tenant and does not form part of the estate.

Shares and managed funds

Directly-owned shares and units in managed funds that are in your name only form part of your estate and will be passed on in accordance with your will by your executor. The executor can sell shares and distribute the proceeds or distribute the shares directly.

But jointly owned shares come under similar rules to real estate. Where shares are held as 'joint tenants'—which is common in many brokerage accounts—the other owner automatically takes full ownership.

Bank account

If you have a joint bank account, the money will also transfer directly to the other joint holder.2 Otherwise, bank accounts are closed and the money paid to the executor or administrator, who then distributes the money to your beneficiaries.

Personal assets

Your personal property like cars, furniture, clothing, artwork and other goods form part of your estate.3 Most personal property will be distributed according to your will. Property that requires registration, like cars and boats, will need to be formally transferred by the executor.

Family trusts

Assets held in a family trust do not form part of your estate. Assets held in a trust are owned by the trust, which continues to operate after your death.4 The trust determines who gets the assets regardless of what your will says.

Private companies

Similar to family trusts, any assets owned by your private company do not form part of your estate when you die because those assets are owned by the company, not by you personally. This is true even if you are the only shareholder in the company.

The shares that you own in the company do form part of your estate and can be passed on.

Private companies can be complicated if you are the only director and don't leave a will appointing an executor who can appoint a director to the company after you are gone. In that case, a relative would have to apply to the Supreme Court for letters of administration to manage the estate which can take months(5), during which time the company may be unable to trade.

Superannuation

Your superannuation is also not part of your estate as it is held in trust to fund your retirement. Your super is passed to your beneficiaries in very specific ways, usually through a Binding Death Benefit Nomination or a reversionary pension.

The benefit of considering what type of assets will need to be dealt with when you are no longer around may not seem like a big deal but it can make it much easier for those set to receive things you want them to have and for those charged with distributing your assets. So it is well worth while giving the matters covered in our three part series on estate planning serious consideration. 

 

1. https://www.ato.gov.au/General/Capital-gains-tax/Deceased-estates-and-inheritances/Inherited-dwellings/Joint-tenants/
2. https://moneysmart.gov.au/losing-your-partner
3. https://www.lawaccess.nsw.gov.au/Pages/representing/after_someone_dies/distributing_the_estate/transferring_personal_property.aspx
4. https://moneysmart.gov.au/wills-and-powers-of-attorney
5. https://asic.gov.au/for-business/running-a-company/company-officeholder-duties/importance-of-sole-company-directors-or-shareholders-having-a-will/

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
28 July 2020
vanguardinvestments.com.au
 

 

In the current low interest rate environment, an investment product offering low-risk, high returns may sound very tempting.

 

 

That’s especially when the offeror implies it has the personal backing of the chairman of Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), by using his name and photos.

Unfortunately, though, it’s just one example of a recent investment scam uncovered by ASIC, and it highlights an alarming rise in fraudulent activities targeting investors since the onset of the COVID-19 pandemic.

Investment scams are a huge and growing problem, and they’re becoming more and more sophisticated through the use of fake websites, media releases and stolen company logos.

In the past fortnight, regulators including ASIC, the US Securities and Exchange Commission, and the UK’s Financial Conduct Authority have all issued warnings around a surge in investment scams.

They include outright fraudulent schemes, where there are no actual underlying investments involved, and the promotion of crypto currency assets and foreign exchange products, with fake endorsements from celebrities or government agencies.

In the US, there has also been a sharp rise in fraudulent stock promotions and market manipulation, with more than 30 companies suspended since the start of this year. A number of those relate to companies having made false claims of being awarded large medical supplies contracts related to COVID-19.

Fraudsters also have been busy taking advantage of the volatile markets to tout “safe” or “bottomed out” investments in companies that purportedly have interests in commodities such as gold, silver, or oil and gas.

Others activities involve fraudulent investment offers by unregistered companies, with reports by ASIC of companies asking consumers to pay money for financial products or services into different bank accounts each time funds are transferred.

Since the onset of COVID-19, ASIC has detected a 20 per cent rise in the number of investment scam reports from Australian consumers and investors.

ASIC is particularly concerned about the risk to consumers and investors of losing money when buying into crypto-currency assets, with most investment opportunities appearing to be outright scams.

Who is being targeted?

According to the Australian Competition & Consumer Commission (ACCC)’s just-released Targeting scams 2019 report, investment scams cost Australian investors $126 million last year. A further $132 million was lost to business email compromise scams.

In 2019, people aged 65 and over made the most reports to the ACCC’s Scamwatch website, followed by those aged 25 to 34.

However, the highest losses were actually reported by people aged 55 to 64, who lost nearly $30 million last year. The ACCC says this is likely due to this group’s accumulated wealth, coupled with their interest in investment opportunities.

Out of the total of 167,797 Scamwatch reports, 19,783 involved lost money.

Young people were more likely to report a scam that included a financial loss. For people under 18, 26 per cent of all reports involved a financial loss. This age group lost $471,595, an increase of over 170 per cent from 2018.

The ACCC says one piece of good news is that increasing numbers of people are now able to recognise and avoid scams.

The competition regulator points out the importance of telling others about scam experiences, with many people avoiding scams through word of mouth from friends or family.

How to detect an investment scam

To paraphrase a very old saying, if an opportunity sounds like it’s too good to be true, it probably is.

Scams can take many forms and, as noted, are becoming increasingly sophisticated through the use of technology. Some scammers are using fake websites that mimic the sites of legitimate financial institutions.

However, there are multiple ways to greatly reduce your chances of ever being lured into an investment scam.

  • Beware of any direct or indirect approaches to invest, especially from unknown companies but even from people purporting to be from a well-known company or a government authority.
  • Types of approaches can be investment cold calls from bogus stock brokers or portfolio managers pretending to promote shares, other investment schemes, or to offer financial advice. Other approaches can include advertisements or invitations to investment seminars designed to promote “exclusive” investment opportunities offering high returns. These can be straight scams, or involve very high-risk investment products or schemes.
  • Also be on alert for superannuation scams offering to give you early access to your super funds, often through a self-managed super fund. Accessing superannuation is subject to very strict conditions governed by federal legislation.
  • Never respond to unsolicited messages, calls or emails that ask for any personal information or financial details. ASIC advises to just hang up or delete suspicious emails.
  • Don’t click on any links or open attachments in emails unless you are completely certain of the authenticity of the sender. You can easily verify website addresses by searching a company separately (without clicking on an email link), or by checking their contact details through other online information sources.
  • If in doubt, check that the company’s website is displaying its Australian Business Number and Australian Financial Services Licence (AFSL) number. These can be checked using ASIC’s online search registers.

 

Tony Kaye
Personal Finance Writer
07 July 2020
Vanguardinvestments.com.au

 

 

Superannuation fund members facing financial hardship have been given an extended window to access retirement savings under the early release scheme.

 

         

The federal government has extended the length of time in which people will be able to use the early release of superannuation (ERS) relief initiative, with the scheme now set to close at the end of the year instead of late September.

The move was announced today by Treasurer Josh Frydenberg as part of an Economic and Fiscal Update in which the government also announced the date on which the deferred Retirement Income Covenant would apply.

In announcing the extension of the ERS scheme to 31 December 2020, the update stated the government was taking the action “to increase the scope for individuals who may still be financially impacted by COVID-19 to access early release in the coming months”.

The amount available to super fund members via ERS will remain at $10,000 and no changes to eligibility requirements have been announced, meaning the initial conditions imposed will remain until the scheme concludes at the end of year.

Other relief measures, including the temporary halving of superannuation minimum drawdown requirements for the 2020 and 2021 income years and reductions in the upper and lower social security deeming rates, will also remain in place.

The ERS extension has been estimated by the government to decrease its receipts by $2.2 billion over the budget and forward estimates period, and its use in future economic downturns to provide hardship relief for fund members was recently flagged by a government senator.

In the update, the government restated it was deferring the commencement of the Retirement Income Covenant, which it had announced in the 2018/19 budget as starting on 1 July 2020, to 1 July 2022.

The deferment was announced in May, but no final start date was given at that time, and the update stated the new start date was “to allow continued consultation and legislative drafting to take place during COVID-19. This will also allow finalisation of the measure to be informed by the Retirement Income Review”.

The review panel is due to hand its report to the government in the coming week.

 

Jason Spits
July 23, 2020
smsfmagazine.com.au

 

The ATO has expressed concern that some trustees with diminished pension account values may be putting themselves at risk of exceeding their transfer balance cap by commuting their pension and then topping it back up.

 

         

In a recent discussion with Smarter SMSF, ATO assistant commissioner, SMSF segment, Steve Keating said the ATO is worried that some trustees don’t fully understand how the credits and debits in their transfer balance account operate, which may expose them to potential transfer balance cap issues.

“We’re concerned that where we’ve seen the value of pension accounts reduce, that some trustees may be putting themselves at risk of exceeding the transfer balance cap by commuting to roll back and then top up their pension because they may not properly appreciate how the credits and debits in their transfer balance account operate,” he explained.

“Without getting too technical, if a member starts a pension valued at $1.5 million which is today now worth only $1.2 million and they wish to roll it back into accumulation phase so that they can top it up with, say, $300,000 that they still have in accumulation phase, if they start a new pension at $1.5 million, they’ll be in excess of their transfer balance cap by $200,000.”

Mr Keating said this means the trustee will have to commute the excess, plus any extra transfer balance earnings from the pension as well as pay excess transfer balance tax.

He also reminded SMSF professionals and trustees that where a pension is being commuted in part, trustees must ensure that sufficient assets remain to meet the minimum pension payment status for that year based on the original value of the income stream at the start of the year.

“Trustees have an obligation to ensure that the commencement and commutation of pensions is supported by contemporaneous records and that the payments have been correctly characterised to allow the SMSF auditors to ensure that the minimum pension payment status had been met,” he said.

“There are transfer balance cap as well as exempt current pension income consequences if a pension fails to meet the standards, and these can lead to more and more complex TBAR reporting obligations in the future.”

 

Miranda Brownlee
24 July 2020
smsfadviser.com

 

 

2020, a year that will be marked in history by a pandemic that had devastating effects on global health and economic activity to individuals and nations across the world.

 

           
In financial markets, the effects of the pandemic set forth a rollercoaster of volatility that spotlighted the fundamental role of bonds in investment portfolios.
 
Making the case for bonds just 12 months ago would have been a difficult task. In June 2019, the share market was experiencing its eleventh straight year of growth following the GFC – the ASX 200 was a mere 500 points from its all-time record of 7,145. Equities were on an unbelievable bull run, and what was to make anyone believe that this would not continue? Investor portfolios had not been tested in any serious fashion for more than a decade.
 
When markets feel at their best is perhaps when it is most paramount for investors to keep a perspective on their long-term goals. Whether those goals be for life in retirement, to ensure a well-being for others, or for philanthropy, an investment portfolio likely entails a multi-decade horizon, and as a result, needs the ability to withstand the machinations of markets over various periods.
 
Going back to June 2019, many an investor considering a rebalance of their portfolio would have questioned the logic of diversifying away from outperforming growth assets – equities – and reallocating to bonds. High-quality bonds are boring – they are often synonymous with stability and income. It would have felt like leaving money on the table.
 
The vanilla nature of high-quality, investment grade bonds, would have lulled many an investor into overlooking one of their most alluring aspects during the past decade's equity run. Bonds are a diversifier in an investor's portfolio, serving as a ballast to equities in a market downturn. While there is a spectrum of bond offerings in the market, we are focusing this conversation on investment grade bonds and the role they play in a diversified portfolio.
 
The market volatility during the first half of 2020 starkly displayed the differing characteristics between equities and other growth assets and bonds. This period provides valuable insights for investors managing a long term portfolio; specifically, how bonds can reduce all-in losses versus an all equity asset mix.
 
The chart below compares the daily return of a global bond and global equity portfolio between January and June of 2020, scaled to 100 at the start of the year. The first thing that jumps out is the deep “V” of equities in March relative to the muted dip in bonds. Both asset classes experienced a period of negative returns, but of significantly different magnitudes. Equities have yet to fully recover. Equity optimists may raise the point to the recovery of equities over a longer horizon, however, this article is not an argument against the long term benefits of equity exposure, but rather how the two asset classes complement each other in a portfolio.
 
 
The wild, daily swings in March and April were enough to unnerve any investor, and the trap for investors was selling equities when things felt their worst – participating in the downswing, locking in losses, and missing the opportunity to partake in the recovery. Exposure to investment grade bonds during this period served as a cushion, dampening overall portfolio volatility and potential losses, leaving an investor better placed to ride out the volatility and experience the equity rebound.
The table below compares global and local equity and investment grade bond returns over the first half of the year. This period was exceptionally volatile, but it does a nice job at illustrating the diversifying effect of bonds in a portfolio. Over longer, less volatile periods, while the balancing benefit of bonds is more subtle, they still produce value for a long-term investor, especially if short term market conditions trigger the need for realisation of losses in an overweight equity position.
 
So, just as the chart above demonstrates the stability provided by bonds, the table below shows the benefit in times of volatility. While the prima facie return from bonds is modest across different phases of the first half of 2020, the differential with equities is large, as seen with the far right columns. The comparative out performance of bonds is in double digits for the half year, the first quarter and the month of March.
 
 
  Global Bond Australian Bond Global Equity Australian Equity Bond vs Stocks (Global) Bond vs Stocks (Australian)
1H 2020 3.81% 3.53% -7.81% -11.76% 11.62% 15.29%
1Q 2020 1.28% 2.99% -22.65% -24.05% 23.92% 27.03%
March 2020 -1.86% -0.21% -14.51% -21.18% 12.65% 20.97%
 

Global Bond: Bloomberg Barclays Global Aggregate Float Adjusted Index
Australian Bond: Bloomberg AusBond Composite Index
Global Equity: FTSE Global All Cap Index
Australian Equity: S&P/ASX 200 Index

 
So here we are, in the second half of 2020, post one of the shortest and sharpest bear markets in history – and many investors who were overweight in higher risk asset classes would have coveted the downside protection that high quality bonds would have provided. Even though equities have partially rebounded, most markets are sitting on losses year-to-date. Those with little diversification away from equities are probably feeling better now than in March, although the sting may not have fully worn off.
 
Looking ahead, there remains a cloud of uncertainty for global health, economies, and markets as a result of COVID-19. Recent history has shown there is no better time to appreciate and utilise the benefits of investment grade bonds in your portfolio. As mentioned earlier, there are different types of bonds available for investment, and each type and class play a role in a diversified portfolio depending on your investment goals, risk aversion, and time horizon. High yield, lower quality bonds might fit in one person's portfolio but not another's. High yield bonds do not provide the same degree of diversification from equity behaviour as do investment grade bonds. For this reason, investors need to make sure they understand what their portfolio's bond allocation is exposed to.
 
Whether you prefer index investing, active funds, or a mix of both, be sure you consider the benefit of diversification and the crucial role that bonds can play within your portfolio. For those uncomfortable making the asset allocation between growth assets and bonds, there are diversified fund options to ensure you can still include a bond component in your portfolio.
 
As always this should entail a consideration of your long term goals, risk appetite and the fees you will be paying. That way, the lessons of 2020 will ensure bonds will be an important part of helping you achieve your investment goals, whatever they may be.
 
 
Geoff Parrish
Head of Fixed Income Group, Asia-Pacific
28 July 2020
vanguardinvestments.com.au
 
 
An iteration of this article was first published in The AFR on 29 July 2020.
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