Think about the children!... what to do with our properties

Discussion in 'Wills & Estate Planning' started by LATS, 4th Jun, 2020.

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  1. LATS

    LATS Active Member

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    I don't know where to start or what questions to ask, so please bear with me. Where do I start with the following with the end result to benefit my 2 children? What would you do?

    I started buying properties because I ultimately need a roof over my head and it's safe. I say buying instead of investing because, well, I didn't planned to buy multiple, didn't have a specific goal as to what I would do with it at the end. So reading all the other people saying 'end goal' and 'strategy' - wow. Because I didn't start, nor during the process had specific goals or strategy, I never purposely seek out professional advice, and so each time I saved enough I get wandering eyes and buy another one.
    Where I learnt most, is probably from here and on Somersoft, just reading and try to understand.
    Current situation:
    We have 7 properties (Syd & Mel), total value approx $6.4m, loan balance approx $3.1m, all individual loans:
    - 2 in husband's name
    - 1 in joint names
    - 4 in my name
    (I am a silent partner with family in another mixed residential/commercial property, if sold my share is probably $200,000 after cap tax).

    What to do:
    - Eventually I want each child to have 1 property to themselves, regardless of whether fully paid out or still has some amounts owing.
    - They could live in it, cash it, or rent it out. I would hope to educate them to make it on their own first, so the property available is to be a backup or a resource to leverage for success if they need it.
    - I don't want the property or the inheritance go into the wrong hand in case they mixed with the wrong crowd or in a bad relationship. We haven't got a will, but started talking about it couple months ago (Covid19 bring out all the dark thoughts) :)
    - We are both 43, wanting to reduce working hours or be semi young-grey nomads :) but still have many years of working years if we need to reduce the loans further, or acquire more properties.
    The older child will be 18 in another few months, that and the grey nomad desire, triggered me to want to better manage the above.

    So, where do I start? and What would you do if this is you?
     
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  2. Trainee

    Trainee Well-Known Member

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    A good lawyer who specialises in wills and estates. Pay for good advice. A couple thousand dollars, probably.

    not having wills with that sort of asset base is insanity.

    consider different situations. One of you dies first. What if the other remarries? Some potential structures to provide tax advantaged income to your descendents. Who should manage the estate?
     
    Last edited: 4th Jun, 2020
  3. Gockie

    Gockie Unicycle - get exhausted but never two tired Premium Member

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    Just going to say.... congrats with your portfolio. Sounds great.
    You are middle aged, and all I can assume is that you and your husband are on the same page. Yay :)
     
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  4. LATS

    LATS Active Member

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    We previously agreed to resign, live abroad and work p/t in 2021 when child goes off to uni. But seems like he's caught a new career bug now didn't want to let go of his job, so looks like he may continue being a workaholic and me going for temp/contract/flexible work?
    But on the property and inheritance side, yes, both husband and myself are on the same page.

    @Gockie how are yours structured?
     
  5. LATS

    LATS Active Member

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    Agree! Knowing is one thing, but all those years just didn't do anything about it. It's always "I'll get to that later".

    structures to provide tax advantaged income - is that still the lawyer? or someone else?
    Trust comes to mind, but how do I transfer all those individual named properties into a trust? and if it could is it a transaction with stamp duty for transfers? or would I somehow have to change ownership titles? (told you I have no idea).
     
    Last edited: 4th Jun, 2020
  6. Gockie

    Gockie Unicycle - get exhausted but never two tired Premium Member

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    My property are all in my name, except the PPOR which is tenants in common! Partner is not interested in owning IPs, won’t let me pull equity from the home and I do encourage him to invest in shares but he doesn’t seem to do anything with my suggestions... and... if I could have persuaded him in on properties we could be MUCH better off overall. But anyway, it is what it is. (Even my little non super share portfolio, which I spent 50k in the Covid downturn is currently up ~8k right now after just a couple of weeks and I think has a lot more upside too....)
    I have no kids, so it would be down to the nephews and nieces for the inheritances. :)
     
    Last edited: 4th Jun, 2020
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  7. Lacrim

    Lacrim Well-Known Member

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    Similar to our situation but a tad older than you ie late 40s and numbers are different.

    Yes definitely get a comprehensive will done to cover all angles but re: inheritance of 1 property each per kid, how are you going to account for the fact that each property's value and location are diff. What if both kids want the same property?

    Also, are you planning to sell down the rest and unlock the equity or keep? With loans at $3.1 and value at $6.4, I'm guessing the properties are still negatively geared or cashflow neutral at best with P&I?
     
  8. LATS

    LATS Active Member

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    re which property to which child - they don't get a say. It's a gift, they get what they're given.

    re property planning.... I don't know, I am hoping to hear ideas from here to think of options. I did think of selling down progressively but means I have to keep on working, I also think of selling our home which would pay out 4 outright and live on the rent itself, and then there was also a thought in my head to sell everything and just bank it live on interest. They are slightely negative and 50/50 P&I/I mostly because I've been a lazy investor to improve the rental or change the loan.

    So @Lacrim as you are in similiar situation, could you share what you are doing so I could learn please? feel free to PM me if more comfortable that way.
     
  9. Terry_w

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

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    I advise on something similar to this the other day.

    There are many things that could be done but one of the simplest might be to sell the property to the child - one each. You could vendor finance it by lending them 105% and place a mortgage over it for security. If they get into strife you have protection and can give pass on the debt to a trust if you were to die - they could control the trust.

    If the property is not one you would rebuy today they could buy a different one.

    This will trigger CGT and duty , but they can get the main residence exemption for land tax and CGT going forward which will help.

    Or allow them to treat it as if it is their property and you pass it on via a will incorporating a testamentary discretionary trust.
     
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  10. Terry_w

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

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    Have a will with an equalisation clause so that gifts can be adjusted - by the executor with input from the beneficiaries. Can be done without triggering duty or CGT
     
  11. LATS

    LATS Active Member

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    thank you @Terry_w ! that advise you're referring to, was it in this forum? If it is I'll make sure to look it up.
     
  12. Lacrim

    Lacrim Well-Known Member

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    Rather than financing it I reckon its better and less hassle to sell it to them at a discount when they're willing/able, and have them go to the bank and borrow the money (from the bank).
     
  13. Lacrim

    Lacrim Well-Known Member

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    I reckon I'll will it to an ironclad trust where they can access the returns ie net rent after expenses but not sell the asset unless its under xyz circumstances. The one that bothers me most like you is how you protect it from their other half if a marriage sours for example.
     
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  14. Terry_w

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

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    No, a law client.
     
  15. Terry_w

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

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    At least vendor finance the deposit - could be at 0%
     
  16. Terry_w

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

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    Have one trust per child, but Child A is a beneficiary of Trust B controlled by Child B etc - none control 'their' own trust.
     
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  17. Mumbai

    Mumbai Well-Known Member

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    Note: No advice. Just resonating our situation with yours.

    Congrats on your purchases and it's a good place to be in.
    Wife and I are in the same age bracket but nowhere near the value of properties you have. Our properties are all equally shared. Fortunately, she likes being involved and happy to go on with more purchases.
    We have plans to buy a PPOR in Melbourne which could halt the IP journey for some time.
    We have two kids too and plan to leave one property each to them as you mentioned above. Good you brought the Wills discussion up. We need to sort it out as well.
     
  18. willair

    willair Well-Known Member Premium Member

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    That's a good read ,and well done ..just from the sidelines with the grey nomad travel plans as the price on motorhomes campervans ECT have dropped value some over 30 percent over the past 3 months and will drop more,good time to buy..with your still young family maybe just ask them the question what they want.good.luck..
     
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  19. wylie

    wylie Moderator Staff Member

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    I thought trusts didn't really help to protect assets once the family court is in the equation?

    If children are adults, inherit a property within a trust, are married with children and then divorce, the trust isn't off limits, is it?
     
  20. Terry_w

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

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    They certainly do protect assets in the family law situation. It will depend how they are set up and the circumstances. That example was from a recent case, can't remember the name now but the son's trust was controlled by the daughter and the daughter's trust controlled by the son. One of them divorced and the trust was attacked but it was considered not to be property of the marriage - but still a financial resource as they were getting income from it.
     
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