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a concerned mother watching her adult children constantly argue with each other

How to leave an inheritance to your Grandchildren, but not your Adult Children?

The reasons why you may wish to leave an inheritance directly to a grandchild and not your adult children are as wide and varied as the motivation to do so.

Just leaving money via your Will for a grandchild to be held in trust until they reach 21 is fraught with risks; from a challenge to your Will to concerns about the effects of addiction, divorce, and financial mismanagement.

So to help you better understand your options, here are three key phrases you need to understand.

Read in this article:

When planning to leave an inheritance, you also need to plan for future risks (just in case).

  • Your adult children may be facing issues with addiction or working in jobs that are exposed to bankruptcy or litigation (like self-employed professionals, Doctors, Engineers or Advisers)
  • Your adult children may be estranged from each other, from past different relationships or have partners with a strong sense of entitlement and are expected to challenge your Will regardless of your support for them in the past.
  • You may feel you have already significantly helped your adult children throughout their lives with financial support, or
  • You may have concerns your adult children will more than likely ‘gang up and single out one sibling’ and challenge your wishes made in your Will to gain an unfair advantage.

You may even just want to make sure you leave a blessing and not the trigger for a potential future family argument.

So how do you leave an inheritance to your grandchildren and bypass your adult children?

The solution to this challenge begins with understanding the definition of three key phrases. Once you understand the differences between them, you’ll be able to better see what you're facing.

Pro Tip: Understanding the difference between these phrases is the key to understanding your options.

The three phrases you need to understand:

  1. What is an estate?
  2. What is an estate-asset?
  3. What is a non-estate asset?

What is an Estate?

Simply put, an estate is said to be all the assets you own.

Assets that you own can be distributed through your Will. If you don't have a Will in place and you pass away, you are said to have died intestate (and the government has a plan for your assets - and you probably won't like that).

What is an Estate Asset?

Estate assets are those assets you solely own and can be distributed in accordance with your Will.

  • They can include; assets held in your personal name (or as tenants in common with another person), property, motor vehicles, shares, cash and furniture etc. They can include life insurance payouts if you have not nominated a specified individual by lodging a formal binding nomination form.

What is a Non-estate Asset (and why should you care)?

Non-estate assets are those assets that are not owned solely in your own name. Because they are not simply owned in your own name these assets cannot be simply distributed in accordance with your Will.  Transferring their ownership requires a variety of other arrangements.

  • They can include; assets owned as joint tenants (most family homes are owned as joint tenants), assets held in a discretionary family trust or private company in which you have an interest; superannuation, pensions and annuities

Why is this distinction between estate assets and non-estate assets so important?

If you don't solely own an asset you can't give it away under your Will.

  • If an asset can’t be transferred under your Will, it can’t form part of a challenge to your Will.

How do you leave wealth to your grandchildren and not your adult children?

One way many Australians are leaving an inheritance to their grandchildren and not their Adult children is through using an Insurance Bond. Often described as the ‘Swiss army knife of financial products’ Insurance Bonds are non-estate assets.

  • This means its ownership can be transferred to an individual (or other entity) directly and as a non-estate asset, it does not form part of the estate assets that pass through your Will.

Remind me again why this is important

If the transfer of ownership does not pass through your Will, it can't be caught up in a challenge to your Will.

There are several features to these structures so speak with us about them to see if they may be right for your situation. You can read more about them at the government Smart Money website here.

Real Life Story

Karen has 2 estranged adult children - who can't be in the same room with each other without arguing - and 2 grandchildren whom she adores. Over the years, Karen feels she has financially helped each of her adult children who later struggled with addiction and poor financial management.

Today she is concerned that if she leaves an amount of money in her Will for each grandchild, these funds may be absorbed by her adult children (or become part of a messy - and expensive - challenge to her Will) and never make it to the intended beneficiaries.

Karen decides to leave an amount of money for each grandchild in an Insurance Bond structure to go directly to the children upon her death bypassing her Will and any future challenge to her Will.

  • Because each Insurance Bond is designed to go directly to each grandchild, she has set a minimum age of 21 before the transfer is triggered.
  • Because the Bond is a non-estate asset, it is outside her Will and therefore outside a challenge to her Will.

Karen has found a direct way to leave an inheritance to her grandchildren, but not her adult children.

And her adult children will never need to know this occurred.


author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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