Strategy: Selling Property on Retirement to buy shares

I live on the share dividends I bought after selling my commercial property. It is my understanding when my 2 children inherit CGT is payable when they sell the shares.

 

Yes. Hope you have incorporated a discretionary trust in your will - ideally one per child.

 

No I haven't, what would be the advantages of setting them up?

 

Multiple benefits
- increased asset protection on bankruptcy
- increased asset protection in family law
- general tax savings of a trust
- special tax savings by distributing trust income to minor children (your kids or grandkids) who will be taxed as adults
- ability to reduce CGT on the sale of the shares or other assets
etc

Anyone that owns a bit in assets should consider incorporating a Testamentary Discretionary Trust in their will.

Legal Tip 23: Why Set up a testamentary trust https://propertychat.com.au/community/threads/legal-tip-23-why-set-up-a-testamentary-trust.1262/

 

haven't they removed the kids income distribution in trusts? I thought the maximum you can distribute now is $1200.

 

$416. But a TT arising from a deceased estate is excluded and so EACH child gets a tax free threshold

 

s102AG makes children taxed as adults on income from a trust under a will. which means $18,200 per child tax free, and then 19c up to $37k.
Children are better than bucket companies!

 

Naah! I am ancient, my kids? are middle aged and there is no chance of me being declared a bankrupt

 

Do they have kids?
What about them being declared bankrupt?

 

Have only skimmed through the discussion, good topic.

couple of con's with property over shares;

• harder to diversify, i.e even if you own in multiple areas, you only hold property. Shares can include many segments, including property.
• property is more involved, repairs, maintenance, liaising with PM.
• shares get franking credits which further boost returns.

 

we have a mix of property and shares as well as super separately. after our last experience eviction damage police and all the ugliness. shares look more and more attractive or better still sell up and spend and enjoy. lifes too short for some of the crap involved in property.

 

Is this comparison Nominal or Adjusted?
Property is leased/rented - is that factored into the growth comparison?

 

not my chart, just something I have seen.
those returns are real (adjusted).
I'm trying to find the source of the property return data. Would be a combined capitals figure.
According to that data, the average real returns from 1980 to 2014 for shares is 7.12% and for property 6.16%.
Looks like it takes into account some total property return.
All the real house price growth rates I have seen are around 3% average from 1980

 

One thing I like about property and in particular, land, is that they aren’t, in general, making any more of it.

What we have is all we have (unless we go to another planet). As the world’s population grows, there is less on average for each person. As a rule, the value should rise as demand rises. Even if you do nothing with the land, typically its value will rise over time.

Whereas with shares, basically anyone can register a company and create shares. It isn’t that expensive to do this. Even I have registered a number of companies and created many shares (I haven’t created any land). There is potentially an infinite number of shares that one can choose to buy/own.

If you do nothing with the company, the share price will not change (trustee companies). One must create a verifiable future income stream for the company in order to increase the share’s value/price. This can be a lot of hard work.

 

increasing number of shares is equivalent to increasing the number of people on a property title, the underlying asset doesn't change.
the world has a finite resource, whether it is land or resources.

 

I am talking about starting up new companies (very expensive to create new land) not releasing more shares in existing companies (which is a bit like adding more people to a title).

Business/companies drive the economy and the world wants/needs the economy to keep growing. Land is a lot, lot more finite than the economy, IMHO.

 

I agree in the long term. In my lifetime, definitely not. Compare the land that could be built on near/around the inland rail or major capital cities - the availability won't dry up any time soon... Good land in a great location though is entirely another matter. But when you see how far out from the city centre people are already willing to go (and older people say they are insane to do it), I have no doubt the next gen and next after that will be (in)willing to do the same.

 

Slightly disagree.
I am unsure what % of total funds in ASX are held by OZ Super fund managers, does anyone know? But if baby boomers are getting older and more are retiring or using their pension Super, with age they are being forced to withdraw more as a %, remember it starts with 4% withdrawal under 65 years and then is to increase gradually with age till 14% I think. Baby boomers as a % are a larger group, there are progressively more of them going into pension phase too by getting older and living longer. Our Super is designed so that it is to be used more further down in retirement. And I presume most of their Super is in stocks, as I think I read somewhere only around 3% of Super was in residential property.
Now, I don't know if pensioners use it all up or save some personally and then re-invest personally if they no longer can re-contribute into Super? So to me this implies the funds eventually will become depleted more, more baby boomers will need to take out more. If most are in stocks, and then the new working population isn't replaced at the same rate then more would leave the stock market, yes or no? It would not just be for the reasons mentioned by MTR, but also due to our Super withdrawal rules and so many baby boomers!
We are only entering this phase as not too many are fully retired but perhaps that's why governments are looking into franking credits as they realise they would lose a lot of tax?
In comparison around 65% of properties are owned by owner occupiers so even if 35% of all IPs were not rented or sold somehow I don't think the market would crash, plus we do need a roof under our heads? What would happen to people, investors if ASX fell by 35%, as during GFC?
For me it is also an exposure of the amount invested in the ASX and to sleeping well at nights as compared to property.
I suppose using Terry's example on one property and investing $600K would not matter so much in downturn but assuming and having exposure in millions invested in property with little risk and no margin calls to the tune of millions as opposed to ASX to such volatile markets makes me think, "Could I sleep at night?" And...the answer for me is resounding "NO".
Other than leverage I actually like the aspect of the property not being as volatile as a share, otherwise it too would be more susaptable to larger losses or gains and I prefer the lower risk with stability rather than higher risk and volatility!

I suppose other aspects make me think (sorry Terry you asked to pull in some ideas!) assumptions are, why we need to sell, why not redevelop and build a new IP (why not create another child?), or few IPs if zoning down in time permits, hence new depreciations, or our kids can do it, maybe dual living in one building will be permissible down in time?
Why not draw down the equity and live on it, allowing future capital growth, so can dip and withdraw in more favourable times, permitting more favourable valuations and lending criteria?
And if you have many then why not just keep selling one IP as you need it?
I don't know but I see so many other choices, maybe it is just me?

I just never plan to sell any, that was part of my strategy....and I just cannot bring myself to invest millions into ASX as I do in property!

 

Bullet one, a segment of pizza is still a segment of pizza, it doesn't matter if it is cheese on it, or meat, or supreme, a slice is a slice of the whole pizza.
And why diversification makes it better, as Warren Buffet said, "“Diversification is protection against ignorance. It makes little sense if you know what you are doing.” I personally like to specialise rather than to generalise. If you needed a family lawyer would you like a specialist in the field or one that knows some aspects of ALL the law?
Bullet two, yes it is more involved, and I look at it as part of doing the business. And investing in stocks doesn't require any research or selection process, process of doing the business?
Bullet three, property is composed of CG and CF, hence growth and yield to boost returns. Who is to say franking credits will be always be there? Not all stocks provide it now too?

I don't mean to turn this thread into property vs stocks (too many already exist) it just my preference and we are on property forum I think?