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Asset Allocation and Rebalancing

Andrew Aitken

The average reading time for this Alert is three minutes.

Often you would hear from financial planners and read articles about how asset allocation and rebalancing is one of the key disciplines for financial planning. With the arrival of COVID-19, we have seen many clients wanting to rebalance their estate plans because of the change in values of certain assets by contrast to others.

While property prices have generally held up, the value of shares, superannuation, managed funds and the like have generally seen downturn to the same effect as the economic downturn. The value of private businesses, in many cases, have also been substantially reduced because of the effects of COVID-19 (and the impact of the recent bushfires).

What this means is, if an estate plan is to provide assets of roughly the same value to different beneficiaries, what appeared to be fair and equitable before Christmas may no longer be. 

To reduce the disparity and potential friction between beneficiaries, clients are looking at three key things:

  • Firstly – can they rebalance assets within their estate to achieve the same effect? If not, will the executors of their estate need to liquidate assets in order to achieve an equitable result? This is a particularly important aspect in any rebalance as many assets can hold material or sentimental value and while a beneficiary may be able to “buy out” the asset from the estate or another beneficiary, this is not always viable or fair, of itself.
  • Secondly – will they need to restructure their asset portfolio to meet the current climate and also the future climate? Certain types of asset portfolios will yield different returns and growth in response to COVID-19 and depending on the anticipated longevity of the investment, this may no longer suit. Whilst tax and duties are a factor in any portfolio restructure, the restructure may provide more flexibility in the rebalance.
  • Thirdly – can the Will provide for an adjustment out of different assets in the estate (usually cash) based on the valuations of the assets at the date of death?

How we can help

Although, due to COVID-19, the execution of formal estate planning documents face more hurdles, we work closely with clients to address and meet their needs. If we can help in any way during this challenging period, please contact Andrew Aitken (NSW) or Ilana Kacev (Vic) for further advice.

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