Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
How to avoid late-life financial threats to your wealth, welfare
A Sydney widow facing legal fees of more than $400,000 over a fight with her de facto children about whether she could remain in the family’s Sydney apartment highlights the growing late-life financial risks to many retirees.
Florencia Baldwin, 64, could spend a large chunk of her expected inheritance from her late de facto partner on legal fees for the right to spend the rest of her life living in the “more convenient” home in Breakfast Point, 16 kilometres west of Sydney’s central business district.
Baldwin was bequeathed a life interest in a seaside property in Pindimar that is more than 200 kilometres north of Sydney.
Lawyers warn that families are increasingly fighting costly and bitter legal disputes on issues ranging from wills through to cash gifts and repayments for loans made by the increasingly popular Bank of Mum and Dad.
“It is a big issue,” says Laura Dolan (pictured), an associate with lawyers’ Attwood Marshall.
Baby Boomers, those born between 1946 and 1964, are increasingly using their estimated $3.5 trillion in assets to help younger family members get into the property market.
Family structures are also becoming more complex, with an estimated 8.5 per cent living in households with de facto children and more than 80 per cent of couples living together before marriage.
“Often loan agreements, such as a parent funding a deposit, are decided on a handshake,” says Dolan.
These agreements can fail to take account of the parents’ financial needs and security, including the potential impact on pension entitlements, aged care support and tax liabilities.
Dolan warns disputes often arise where there is an informal or verbal agreement that the child thought was a gift, which parents had no expectation of being repaid, and a loan that requires repayments pursuant to the agreement.
“If there is no loan agreement and the child who is in a relationship breakdown asserts a loan needs to be repaid to the parents, then the other party could dispute that a loan existed and raise issues for the parents to recover those funds,” she says. “There needs to be a commercial contract.”
She recommends parents seek legal and financial advice about a loan agreement, including the terms and interest rate and what happens if the child separates from a partner or faces financial difficulties.
In addition, it is critical to understand the difference between a secured loan, where the loans are backed by an asset, such as the child’s home, and an unsecured loan, where it is not backed by any collateral.
For example, there is a six-year limit on unsecured debts being enforced if there has not been any repayment or acknowledgement of the outstanding amount.
Parents concerned about the longevity of their child’s de facto relationship might also suggest a prenuptial agreement setting out ownership of assets, liabilities, such as parental loans, and how they will be split if there is a break-up.
For lawyer Andrew Meiliunas, associate director of lawyers’ Nevett Ford, the lesson from the Supreme Court case involving Baldwin is the importance of estate planning, especially for blended families.
Florencia was the de facto partner of William Fisher for two decades. He died in April 2023.
He left behind a $1.55 million house, an apartment worth $1.8 million, $756,000 in cash and $570,000 in superannuation.
Florencia challenged a bequeath granting her a portable interest in the house, meaning she could reside in it or use its value for accommodation, and his superannuation.
She sought to swap the house interest for one in the apartment so she could be closer to her birth children, and to receive the apartment outright, rather than having it held in trust.
This was opposed by Nerida Favre, one of the deceased’s daughters and one of four equal beneficiaries under his will.
Justice Richard McHugh of the NSW Supreme Court ruled that the “unqualified picture that Florencia painted of a ‘happy family home’ was seriously incomplete”, adding that it was at times “volatile and violent”.
He ruled that the partner’s wellbeing and security would be better supported by a portable interest in the Sydney apartment but did not grant her full ownership, meaning it is held in trust.
Meiliunas adds: “This case underscores the importance of estate planning.”
