$200k cash + 15 year plan: what do you do?

Hey izzy, I don't know your financials and if your gonna or getting government benefits whilst you have a child. Once the mother starts earning income in can affect what you get per fortnight so maybe have a play around with the calculators. Those lic's might work better in the higher income earner even if you don't get the full grossed up returns. Not sure.

To set up that trust and company I believe is around 1700, and between 750-1150 per year on accounting fees every year.
I know this as we discussed this in another thread and spoke to my accountant.

Payments for families - Australian Government Department of Human Services

Hope this helps.

 

Great comments here, thanks everyone for sharing! These points are really pertinent for those just reading as well (more fuel for the thinking!).

 

OK so there may be a separate discussion on structure, but at a high level what is everyone's thoughts on the core strategy of what I'm planning to do which is:

• $180k into ARG/BKI/MLT + keep $25k cash buffer
• Re-invest all dividends into the above + WHF when value is right
• Top up $400 per week into the above LICs
• Do this for minimum 30 to 40 years.

I guess this is a big call for a young family and I value all of your opinions very highly! Thank you.

 

Up to you at all times. But if I were you, I would look at posts by @austing on how to invest a lump sum. Here is the extract from his guide for beginners.

How to invest a lump sum
There's a body of research that suggests it's best to invest it all at once. The problem is you have just one shot and you may not to be able to afford the risk of dumping a huge sum into the share market and then seeing the market plunge 50%. There are also the psychological issues in that if the market crashes soon after investing a lump sum all at once you are likely to feel deep remorse and experience negative emotions. However if you average in over an extended period of time there appears to be less sense of remorse in this situation.

A useful strategy by the author here Home - HumbleDollar is to invest the lump sum over a period or 2 – 3 years. Then divide this into however many chunks that makes sense brokerage wise. Some suggest a minimum purchase of $3k if using a discount online broker. These chunks could be monthly, bi-monthly or quarterly depending on the sum involved. Move one chunk into your selected share / LIC with the goal of being fully invested within two or three years. If share prices drop 15% from current levels, double your planned purchases. If the market falls 25%, triple your purchases.

Take your time. No need to rush. Often with investing, when you are full of enthusiasm and feel like you are going to burst if you don't do something, is exactly the time to pause and reflect.

Not advice.

 

Sounds simple and effective to me.

I would probably save the dividends and the $400/week until I had enough to make a decent sized purchase, maybe buy-in 2x year? Otherwise, you're likely to be paying about $1000/yr or 5% brokerage on a bunch of $400 transactions. You could spend that $1000/yr on accounting fees for a disc. trust set-up, which might not be so effective in the short term, but 10-20 years down the track could make a significant difference to your income splitting abilities.

 

I would definitely look at the discretionary trust with company beneficiary option.

Apart from that, in my opinion you have a solid plan. Something to note though is that you can tweak this strategy as you go along.

 

Tweaking = good. The company beneficiary is also a good idea, and you can always add this later, probably some time after the wife goes back to work.

 

Yes, that is true and it's something that I didn't think of. It is a lot easier to just set up the Discretionary Trust now and run just with that. You are right the company beneficiary can be added when needed. That will cut down accounting costs in the meantime.

 

Would it be possible to have my wife transfer the shares into a trust further down the line? I don't see our circumstances changing in terms of her going back to work for at least 4 years. Then once we reach the point where we may want to split income via a trust, couldn't she just transfer the ownership of those assets at that particular point in time?

That way I can get started now, save on trust fees for ~4 years, then if future circumstances dictate that it would be more beneficial to set the trust up to split income we could get things structured that way.

 

On death assets pass to the legal personal representative without triggering cgt. From them to the beneficiaries also without cgt.

You could buy shares in your own names and then leave to the trustee of a discretionary testamentary trust.

Or

buy in a discretionary trust now and leave control of the trust to someone as these assets could not be passed via your will.

Or

Buy in a discretionary trust now and have the trust best on your death paid to your estate and then into a discretionary testamentary trust.

3rd option allows for the best of both worlds but would trigger cgt

 

Yes it is possible but I believe that transferring from private ownership to the trust would be a capital gains tax event. @Terry_w, @Paul@PFI or @Ross Forrester should be able to confirm this.

 

Transfer would trigger cgt

 

The transfer of shares to the trust will be a deemed sale at market value. It will trigger CGT.

You might be able to cherry pick the shares so that the net profit on transfer is nil. You do not have to transfer all of them.

 

And one can transfer parcels of shares at times convenient from a tax perspective. Something that cannot be done with lumpy assets such as property.

 

Great points about structuring above and if you have a lazy afternoon(s), there are many posts about structuring in the legal and accounting sections of the forum.

A point that many have picked up above is that rather than dropping $400/week/month etc into the shares, it is better to hold and drop a larger amount in. I also see a big advantage of this being the share purchase plans that the LICs offer from time to time which will allow you to purchase with no brokerage fees - less admin costs!

 

I like to transfer shares during market crashes if possible. That'll reduce CGT significantly.

 

Good thinking. However, @Izzy is looking at buying ARG/BKI/MLT/WHF. Do LIC prices drop as much if there is a market crash?

 

Yep, sure do.

 

I was talking about transferring not buying. Eg if the assets were say purchased in your own name initially but down the track you may want to transfer them to your SMSF or Family Trust.

From memory most LICs were down over 50% at their lowest from pre-GFC high. So a great time to transfer assets to other structures CGT wise.

 

So hypothetically if we had $180k in shares and we didn't want to pay any CGT, and my wife was not working, we could sell 10 x $18k parcels (one per year) over 10 years which would mean she had $18k taxable income for each of those 10 years. I'm not suggesting we'd do this, just wrapping my head around the concept of 'cherry-picking' them.