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Protecting the vulnerable

 

July 2015

 

 

 

 

 

If your beneficiaries are too young or vulnerable to inherit large sums of money, there are ways to ensure you provide appropriate long-term support. 

Every parent wants the best for their children. And naturally your children will form an important part of your wealth transfer strategy.

But a common concern, particularly for high net worth individuals, is when you have young or vulnerable beneficiaries who are not mature or financially stable enough to manage a large inheritance.

As the following case study illustrates, estate planning can play a critical role in supporting your dependants and protecting your legacy.

Jenni and Renee

Jenni’s life would never be the same after she was involved in a major car accident at the age of 21. Always extremely intelligent, she was studying an electrical engineering degree at university at the time, achieving good marks and on her way to a promising career.

The head trauma from the accident robbed Jenni of some of her mental capacity. While she was able to return to university after a year, she regularly suffered headaches and she found it difficult to concentrate. Her grades suffered to point where she was failing most of her subjects.

It wasn’t just Jenni’s studies that suffered either. She often found it difficult to think through complex issues, which resulted in her losing confidence in her ability to manage her own life and finances. On her worst days she relied on her mother, Renee, to help her with a number of everyday tasks.

Over the next three years, Jenni was able to complete the remaining subjects in her degree, but she found it hard to secure an engineering job. Instead she worked part-time in a local café and continued to live at home with mother.

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What happened?

Jenni was 24 when Renee suddenly passed away from cancer. Renee’s will, which she had updated when Jenni turned 18, left all of her $15 million estate to Jenni.

Jenni had been relying on her mother to make a lot of her financial decisions since the accident. Jenni was now grief-stricken and in possession of a large sum of money that she didn’t know what to do with.

Over the next two years Jenni barely worked. She bought herself a new car and luxury boat and travelled the world, often paying for some of her friends to join her. She also made some bad investments based on a friend’s advice, eventually whittling her inheritance down to nothing – forcing her to contemplate selling her mother’s house to make ends meet. 

...a common concern is when you have young or vulnerable beneficiaries who are not mature or financially stable enough to manage a large inheritance.

What could have been done differently?

When Renee saw the impact the accident had on Jenni’s mental capacity, she could have updated her estate plan to provide more appropriate financial support to Jenni if something happened to her.

Renee could have directed a trustee to pay an annual income to Jenni to help her cover some of her medical and living expenses – rather than giving her access to her whole inheritance at once.

This approach could’ve helped Renee keep her estate in the family, while protecting Jenni from the extra stress of managing a significant amount of money. It also could’ve helped preserve Renee’s wealth for the benefit of Jenni, future generations or charitable purposes.

Keep your legacy intact

Your life, and the lives of your dependants, can change significantly from year to year. Similarly, your wishes for how your wealth will be transferred may change as your relationships and attitudes change.

By seeking regular advice from an estate planning lawyer, you have confidence of knowing you’re protecting your wealth and providing your loved ones with appropriate support if something happens to you.

 

To discuss what this insight could mean for you, talk to your ANZ Private Banker directly, or contact us below.

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Source: *National Endowment for Financial Education study.

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