Long term strategy to transfer IPs to children?

I'm starting to think for the longer term (I.e. in 10-15 years), what's the best way to transfer IPs to my children?

The kids are currently young, but I want to plan for them in the longer term. We've got a decent portfolio and want to provide them with 1 or 2 unencumbered IPs each when they reach adulthood. Is there a structure that we can set up now, or do we just wait until the time comes? Current IPs are spread between my name, wife's name, joint and family trust, all in 1 state.

Current thoughts are to set up a trust for each kid. Transfer IPs now to the trusts (take a short term hit on stamp duty). We still control the Pty Ltd company as trustree for each trust. When the time comes, then transfer control of the trust to the kids.

The annual trust compliance costs and initial stamp duty costs might be offset by the reduction in annual land tax.

Keen to get some thoughts before I talk to my accountant and get charged for every minute.

 

Best way is to just die and leave them via a testamentary discretionary trust with a life interest. The will can be structured so this is optional too.

If you have an investment property it would be great for you to die while living in that. Move just before your death to save your beneficiaries tax.

Trust assets cannot be dealt with via your will so make plans now on succession of the appointor positions and trustee positions and control of the trustee company. Consider kids losing control of the trust.

Transferring property to a trust prior to death will be expensive and not strong in terms of family law attacks, but it is still worth considering.

Best not to talk to your accountant, but a lawyer as these are legal issues.

 

Wish I was allowed to give this advice

 

We prefer not to die! Lol

We want to give the kids a good head start when they reach adulthood, hence the unencumbered IPs. Then they can do whatever they want with them (live in them, hold on for income, sell and use the capital to start businesses, etc). I've got 10-15 years to teach them about investing in the meantime.

 

Perhaps a better way would be to lend them money, either yourself or the trustee of the trust, it could be interest free, but you will be a creditor if something bad happens to them - death, bankruptcy, spouses etc. You will also retain control.

 

Are you referring to "lending them money" when they are adults? By that time, we may be asset rich and cash poor.

 

May not be a good idea to lend a 10 year old large sums of money.

 

What about a 5 year old? I heard investing in Lego can be a good investment strategy.

 

If you cannot service at the time there are other options such as parental guarantee type loans. You, or the trustee, could let them use your property as security for their loans.

 

I had to reread your post @Terry_w - I interpreted the above first time through

 

Rephrase it = children could use the parent's property, or a trust property, as security for their loans.

 

Mr Dobalina

Have you ever considered adoption?

As I'm getting on in years most of the hard work has already been done!

I'd be happy with a 50% encumbered property given I'm not a biological child so your other kids don't get upset.

In all seriousness I wish my old man had been interested in investing in property rather buying expensive cars.

 

Haha sure. As long as you promise to look after me when I'm old and senile.

 

For the investors out there who plan to give IPs to your kids, how do you do it (or plan to do it)?

 

By testamentary trust.

 

Can you run through briefly how it works? Does it differ to a discretionary trust?

 

Testamentary just means 'in the will'. so it may be a discretionary trust or it could be a unit trust or a hybrid etc. They work the same way as a trust set up during life time, except the deceased is the settlor of the trust and it doesn't commence till after death.

 

I guess this involves us dying as well?!

 

If I set up a discretionary trust for each child, where they are beneficiaries and I control as trustee; does that give me the option of:
a) transferring control to them at a future date (so in effect transferring the asset to them)
b) retaining control if for whatever reason I change my mind.

 

And people ask why I don't have kids yet....

How about one trust each with the kids as the beneficiary @Terry_w ?