later years and managing investments

[weg]

We often think about retirement, and what we want to do/achieve based on what out investment income will allow us.

What hasn't been brought up here, is what people plan to put into place before they lose the ability to manage their investments - the chances are somewhere along the line there will be some issues of this type.

This may be because they end up suffering an 'old age' illness, or it could they are simply getting old and their capability and judgement becomes impaired.

It could be they leave an estate to a partner/spouse that hasn't the interest or know how of looking after investments.

I've recently seen a few cases where these issues have posed very real problems, resulting in dilapidated and untenanted houses, rising debt, investment loss through deteriorating judgement, 'lost' investments, spouse mismanaging or ignoring investment responsibilities, etc.

Not all were very old, or had a true diagnosis or dementia.

Do you have plans on how to simplify your investments, or ideas on how the investments will be managed once they become too much.

Lets face it, who wants to be burdened with 10 IP's and bad tenants at 70+, let alone struggle with trying to manage it all when they aren't capable.

 

[devank]

I'm thinking of transfering the properties to kids and ask them to pay all our living expenses in return. This is where buying IPs under a unit trust may come in handy.

 

[jrc77]

I figure when I get past normal retirement age (70+) I'll probably slowly start selling down high management effort investments (ie. residential IP's) and invest in to lower effort investments. Spread over multiple years to minimize tax. May even be sooner depending on how my investments go over the next 10-15 years.

Of course I'm intending to have a huge asset base so can live comfortably off ungeared dividends from "blue chip" shares and term deposits at that age.

Regards,

Jason

 

[Angel]

Yeah, not that we have accumulated much yet, but i am training one of the kids to manage IPs (along with everything else in life). Poor thing will have to care for his disabled brother one day so we had better set him up with plenty of knowledge and resources to make use of.

 

[Africandaisy]

I figure when I get past normal retirement age (70+) I'll probably slowly start selling down high management effort investments (ie. residential IP's) and invest in to lower effort investments. Spread over multiple years to minimize tax.

I imagined that as soon as I stopped working I would sell off some IPs to fully pay off the loans on the remaining ones, so I could be debt-free and live off the rent. Then I would gradually sell the IPs one by one, if/when I needed to access the capital as well.

But if I thought my property portfolio was getting too much for me to manage in my old age (like the lawn on my PPOR), I would down-size the IP portfolio and reinvest the money in a low-maintenance investment, like an annuity.

 

[Indifference]

Consolidate to a small group/block of apartments with a live-in manager.

Grant power of attorney to future beneficiary (spouse/child) when time comes, with caveats preventing sale prior to "the end". After that, it is for the living to decide.

Anything else, spend on enjoying life as much as possible, as humanely & comfortable as possible.

 

[pursefattener]

This is an interesting and important topic and I agree that when you get to your 70-80s who wants to be hassled with tenant problems and the rest of it .

Planning ahead , getting advice on estate planning , succession planning and all the tax minimization .

Eventually I will sell my business and how to manage the proceeds well will likely be a problem , albeit a good one .

 

[matto_]

similar strategy as what comes after the accumulation phase - and many ways of achieving it.

Personally - I like the sell down as you go idea.

 

[pursefattener]

I like the idea of holding onto industrial property at that stage with a good solid lease to a business that makes some real money . Selling all my RIPs in the next few years and moving to industrial . I have two industrial sheds in my local town now which are going ok .

 

[Terry_w]

Good thread.

In NSW you need to consider an Enduring Power of Attorney - one that operates after you have lost capacity. But a POA only covers financial decisions so you will also need to appoint an Enduring Guardian to make medical decisions and lifestyle decisions for you - where you should live etc.

You can also set up an Advanced Care directive about serious medical decisions. Do you want or not want certain treatment, do you want to be revived, do you want the plug pulled out etc.

Then there is a Memoranda of wishes - which won't be legally binding but you can leave wishes for someone who could be guided by them. This could be to a new trustee of your trust.

I should also point out that trust assets do not form part of your will or estate. So if you lose capacity it may not be your appointed attorney who becomes trustee. The deed will generally govern this - and it will probably be the appointer who appoints the new trustee. That is why you need back up appointors. If all else fails it could end up being your LPR - legal personal representative after you death. This could be the executor of your estate - which could end up being the public trustee if you don't have an adequate will. Also even if you do have a will you won't have an executor until the will is proved in the Supreme Court, ie probate or letters of administration granted. So your estate will be in limbo until this time.

Super also doesn't form part of your will or estate so you must consider who will be the trustee or control the trustee of your fund as the trustee decides who to pay. You may want to make a binding death benefit nomination BDBN or auto reversionary pension set up. Check if your BDBN lapses too.

And there are heaps of super strategies which can save your family huge amounts of tax. eg. If you were in an accident and have no hope of recovery your attorney could take all your money out of super and place into your estate to fall into your will. This could be done even if you are young and had not reached 55 because of your incapacity. This could save your family up to 30% tax if only have adult children for example. On a $1mil superfund that is potentially $300,000 saving.

 

[pursefattener]

Another excellent post Terry !

 

[HomePage]

Super also doesn't form part of your will or estate

Really? So who does your super go to when you pass away if it doesn't go to these?

 

[alexlee]

Really? So who does your super go to when you pass away if it doesn't go to these?

You nominate a binding beneficiary, which can be your estate, or someone else. On death, the super goes to the binding beneficiary instead of forming part of your estate. Of course, if you nominate your estate as the binding beneficiary, it forms part of your estate.

 

[HomePage]

You nominate a binding beneficiary, which can be your estate, or someone else. On death, the super goes to the binding beneficiary instead of forming part of your estate. Of course, if you nominate your estate as the binding beneficiary, it forms part of your estate.

Thanks. What if you don't nominate anything? ie. where does your super go by default?

 

[Terry_w]

Super is actually a trust structure so it will be up to the trustee to decide who will get your benefits once you die. You can remove this trustee discretion by making a nomination. There are a few different types and some are not binding while others are binding - but they must be prepared properly and witnessed by at least 2 people otherwise they will be invalid. Some are also lapsing after 3 years so you need to check.

There also the possibility to have the death benefits nomination actually built into the SMSF trust deed so there would be no need to nominate anyone.

Only certain people can benefit from your super, including
- spouse or former spouse
- children
- dependents
- estate

So the trustee couldn't distribute it to someone who wasn't one of these classes but problems still do occur.

There was one case where a man left, or thought he did, equal shares to his son and daughter by divying up his super and estate. But the daughter was trustee of the SMSF and the son wasn't. She ended up distributing all the SMSF funds to herself leaving her brother short of about $1mil. He took her to court and lost because it was within her powers to do so.

I met a financial planner recently who had prepared hundreds of these BDBNs for clients and all of them were invalid because there was only 1 witness.

 

[alexlee]

Thanks. What if you don't nominate anything? ie. where does your super go by default?

Technically the trustee has discretion to distribute the benefits. In practice that would probably be your estate, but there's no certainty.

 

[Terry_w]

Thanks. What if you don't nominate anything? ie. where does your super go by default?

The trustee decides. This could be a total stranger if you are in an industry fund or another family member if you are in a SMSF.

Care needs to be taken if you are in a SMSF with only one member as passing control of the trustee company will be very important.

 

[Terry_w]

A good reason not to nominate your estate is

1. Estates can be challenged so increasing your estate could mean those you want to benefit miss out

2. Tax reasons. You may be able to get the benefits straight to non tax paying beneficiaries directly or if it goes to your estate and out to non depedents then tax may be payable. There is also the possibility to leave it to a Super proceeds trust inside the estate so it can be segregated and left to the non tax paying beneficiaries. There can be an equalization clause so the amounts left to others can be amended to take into account payments from the super.

 

[Terry_w]

Another excellent post Terry !

Thanks, but I forget to mention the importance of insurance.

Make sure you have trauma and life insurance in place.

And update your wills whenever you buy new property, pay out loans or every 3 years at least get them reviewed.

 

[HomePage]

Great info. Thanks.