Legal Tip 237: Using to Loans as an Estate Planning Strategy for Death

Discussion in 'Wills & Estate Planning' started by Terry_w, 5th Sep, 2019.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Loans can be great tools in estate planning. One strategy is the gift and borrow back which I have described at

    Legal Tip 115: The Gift and Borrow Back Strategy, Part 1 Legal Tip 115: The Gift and Borrow Back Strategy, Part 1


    Another strategy is to just borrow and park cash as this can enable lumpy assets to be divided up more easily.

    Example
    Say Bart owns a property and wants it to go to his son and other assets which he wants to go to this daughter. The split may be uneven and unfair. Say the property is worth $1,000,000 and is unencumbered and Bart’s shares are worth $500,000. His total assets are worth $1.5mil mil so half is $750,000. If he leaves the property to his son, the daughter will miss out to the tune of $250,000.


    Bart can play around with the percentages, but he would be constantly redoing his will as things changed.

    A simpler solution is to mortgage the property and borrow against it. He could borrow say $500,000 and put it in a 100% offset account on an interest only loan.

    He could also have an equilisation clause in the will.

    His overall assets would be equal to before but some of the cash could be left to the daughter and the loan could go with the property – his son would need to pay it out or refinance it.

    As the values change this would not matter initially as the executor would have the power to adjust the amount of cash given to the daughter so it works out equal.
     
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  2. Trainee

    Trainee Well-Known Member

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    Noting this creates different risks: the son needs to have the ability to refinance or pay out the mortgage.

    Also that the different cost base on the shares and property (different cg later on if sold).

    This would be interesting where there was a family business where one child is involved and the other one isnt.
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes many things to consider

    It can also be a strategy to prevent wills being challenged under family provision claims - under certain conditions
     
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  4. Perp

    Perp Well-Known Member

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    Case law is full of examples of that. Typically farms...
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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