Age Pension and Company Director

Hello Everyone,

Just joined the forum to seek advice. I am wanting to allow my child access to the deeds of an investment property that I own (outright). The financial institution have advised that she can use a property as security (my IP), but I have to be tied into the structure (company). I will not be partaking in any activities of the company, it is purely a requirement of the financial institution for the business loan.

Would anybody be able to advise the impact on my aged pension if I were to become a director of her company?

Also can I limit my exposure to only the investment property?



Thank you.

 

You should see a lawyer about this.

It is likely the assets of the company will be counted as your personal assets for social security assessments and you could lose the pension.

It is also likely you could lose the house too. It sounds like your property will be used as security for the loan. Any lawyer would probably need to advise you not to do this.

 

Being a Director is a important issue and could lead to you losing assets based on all the past and future actions of the company whether you know or agree to them or not. I agree with Terry. See a lawyer - Ignore the initial cost as the advice could save you far far more.

A Director may be subjected to stringent issues with Centrelink. They will subject you to a major review of that entity and it can be adverse to some pension issues. Its worse for a shareholder but a Director still has rights to control.

If you own a home it could also face loss (as well as the IP). Lenders typically require a UNLIMITED guarantee to be given. They dont have to come after your daughter first. They can see you as a easy way to access their security and take your home if they wish.

I know people who have done this and lost their home due a trusting family member actions. Dont do or sign a thing until a solicitor has given you advice. The danger is a existing Director can appoint you and you wont know. But you are required to consent - Once thats done it can be irreparably harmful.

Make sure you see the solicitor without any family present.

 

The above comments are valid. Also push back on the bank and look elsewhere. This, from an outsiders perspective, looks onerous.

Have you considered just borrowing for the deposit and then lending it to your daughter?

If you have other kids you might want to look at the fairness of what your daughter is asking an communicate your actions and rationale to the other kids.

 

This is probably the safest solution.
You might also be able to claim a capital loss if it doesn't come back

 

I assumed I cannot borrow due to my age.

I did ring another bank today and they said what my current institution is offering (tied into the business but at arms length) they would not consider. As the person putting up the security would have to be involved in the day to day running of the business, as the media would not look good if they took an old persons home who had gone as security for a child.

They said what I have been offered is the best I would get.

When I go, the house is hers as part of the inheritance, the other children will receive equal amounts from another property.

 

Are you using a broker? I just got an 82 year old a loan.
Your situation will be different though and it will possibly be difficult.

 

Business is risky - hope you have a testamentary discretionary trust incorporated into your will for her asset protection benefit - and other benefits.

 

Lenders dont see it that way. Anyone can change their will prior to death and leave the lot to a charity or spend the lot on Race 4 tomorrow. Or even be made bankrupt if they have given guarantees to other kids. When we deal with aged care issues we often encounter this view. And sometimes by family who assume that an inheritance is as good as theirs.

Another way may include a reverse mortgage BUT seek some independent advice. Then the proceeds borrowed could be borrowed and then onlent to your daughter. On your eventual death your daughter would need to address repaying the loan or refinancing it herself at that time. Reverse mortgages can easily balloon (since you dont make repayments). A small number of lenders do reverse mortgages for older persons.

ASIC has some information and a tool that helps demonstrate some of the compounding concerns but with practical use it can be a strategy that limits the estate effects to the other kids (if your will is also amended)

Reverse mortgage calculator | ASIC's MoneySmart

 

Back again,

The daughter tried an equipment leasing company to lease all the equipment required, submitted documents etc and they said without a property in her name, they would not consider it.

The finance broker i was speaking to on her behalf said they could not consider without a property in her name. And even suggested a reverse mortgage wouldn't be successful as they know what i intend to do with the money.

Any thought on me being a personal guarantor? even though i don't work and receive the old age pension.

Willing to exhaust all options before transferring the property to her as a last resort, as the CGT will have to be paid when that happens ($125k).

I have a return phone call from Westpac Business Banking tomorrow any scenarios i should put forward?

Wanting to borrow $500k the property is owned outright and valued at $750K.

Thanks.

 

Why not suggest your daughter gets a job and saves up for a business herself? Work experience will help her make better decisions and you won't be taking on any unnecessary risk. If she's really motivated to start a business then she will be willing to do whatever it takes herself.

500k to start a business seems incredibly high and very risky to me.

If you are going to get rid of an IP I would be talking to a lawyer about splitting it with all your children now. How will your daughter have any incentive to work if you hand her a property anyway?

Get some legal advice regardless. Selling an IP will likely have implications for the Pension. I would caution against taking out a loan for a child's business.

 

Looks like you haven't received legal advice yet.

 

She has saved $200k which will be used for the initial starting of the business. It has taken her many years to do this, so saving a further $500k is not feasible.

What would the legal advice be for?

Thanks.

 

So if you end up losing your house and/or pension, you can know that you made this risky decision fully aware of those risks.

Alternatively, perhaps you will need a lawyer’s advice about a less risky path.

 

Legal advice would probably be frightening but will save you a mint and be a valuable investment. It should act as a warning about what can and may go wrong. You could become homeless and penniless due to your daughter's acts. She could be the most educated, clever, intelligent person with what appears a great business and go broke and take you down.

Most tax and legal advisers can tell you tales of this. Just wander through a Westfields and check the shuttered shops which can often be reputatable brands. The media have recently highlighted many well known franchises that are just a debt trap. Each one is probably a family who lost the lot - Or bailed out before they did after losing a substantial sum. Their parents may also be affected.

$200K is not much for some businesses. A basic shop fitout can be $300K. Lease bonds $60K+ and other guarantees $100K.

Tip - Visit the lawyer without your daughter. Business debts are worse than normal loans. The indebtedness can well exceed assets given as security and balloon.