Informed investor – all the wrong assumptions

Personal client | Print Article

March 2023

It’s all yours until it’s not!

How does the Insurance ad go … one day you want it all, the next you have it all? It’s not such a bad truism for asset planning, except we’d want to add ‘… and then you don’t!’

Asset planning is a lifetime’s work for most of us. We work hard, we accumulate, and we make plans for what we’d like to have happen to our amassed belongings – however modest – when we’re gone. For many, things play out according to plan; however for others, things don’t always go as intended – all because decisions have been made on a set of flawed assumptions.

Assumption 1 – It’s mine

One of the biggest mistakes you can make is to assume you do indeed rightfully own a given asset.

There’s no bigger surprise than to find out that the assets you consider your own are in fact owned by your partner and not you. Sometimes ownership structures that you made when purchasing an asset are overlooked later on.

If you own an asset jointly then on your death it will pass automatically to the surviving owner and will not form part of your estate. Joint bank accounts are an example, as generally is the family home, along with any investment property you may have accumulated with your partner or a family member (although not always). Sometimes ownership of these types of assets is share based and that has implications of a different kind.

The first step in any investment and asset planning should be to establish what assets you legally own and to consider whether the ownership structure of those assets fits with your long-term intentions.

Assumption 2 – There’s no need for a Will

Another common assumption is that it doesn’t matter if you die without a Will because your partner and/or your children will automatically receive all your assets. This is not always the case and can result in unexpected consequences whereby your wishes are not able to be carried out.

Assumption 3 – A Trust trumps all

The assumption that a Trust negates the need for an up-to-date Will is a common mistake. Not only is it important that you look at the trust structure, it’s also important to consider how your Will provides for any conditions of the Trust. For example, at your death the Trust may owe your estate some funds. You may wish to ‘forgive’ the debt owed by your trustees to you by making appropriate provisions in your Will to avoid the trustees being required to repay that debt. Not doing so could result in the need to sell assets which were intended to be passed onto the next generation.

Assumption 4 – Company assets are yours to do with what you will

If you have assets owned by your company, on your death you may not necessarily be able to dictate how these are dealt with. It will depend on the company constitution, shareholders’ agreement and, ultimately, on who the remaining directors of the company are.

Assumption 5 – Income from shared assets continues if something happens to your partner

If you have assets that you share with your partner from which you receive a reasonable income, you may assume that if something happened to your partner, that income would continue to be paid to you. This is not always the case. It’s important to understand the source of the income, who the decision-makers are, and whose role it is to decide how the income is distributed.

To make robust and sustainable decisions about your investments, first:

  • understand what your assets actually are;
  • check how your assets are owned and take time to understand what the correct ownership of your assets should be to ensure your wishes are carried out; and
  • understand how your assets will be distributed on your death, separation, or with other life changes

Don’t underestimate the consequences of not fully understanding the lie of the land. Never assume; rather take the time to get the right advice, be fully informed, and make appropriate decisions.