Hi All,
Have been pondering the unpleasant thought of the premature death of my wife and I and how best to protect my 3 (under 18yo) children from themselves and “gold diggers”. PPOR is owned joint tennants by wife and I, so if one of us drops off, title passes to the other – thats fine.
My question is: If the survivor wills the PPOR to a trust (with kids as beneficiaries) will the transfer trigger CGT or stamp duty (NSW)
Secondly would the tax situation be different if we did the same thing with IP.
I know I will need to see a solicitor on this, but was just wondering if people out there had basic info that would help me include/exclude certain options.
Thanks,
Paul
Paul,
I can’t answer your questions, but what you’re describing sounds like a testamentary trust. Ask your advisor about them.
Cheers,
GPPaul,
I know that death does not necessarily constitute a Capital Gain/Loss event. I believe that when a natural person receives an asset from an estate the beneficiary is recorded to have acquired that asset on the date of death of the nominated person. No tax will be payable until the beneficiary sells it later, which that person will pay at their nominated tax rate.
In the case of passing the property to a trust upon death (ie a Testamentory trust) i am not so sure but believe it may be similar to the situation above.
Stamp duty i am not sure of.
i will check my Estate Planning manuals and get back to on these.
Thanks for taking the time to check it out. Would appreciate any further info you dig up. I have heard something about Testamentory Trusts, I thought they were brought into being by a will. I was more thinking of willing to an existing family trust, until the children are old enough to control their own affairs.
I know this is a fairly “morbid” topic, but its something you have to consider when you have a reasonable asset base and children. Next piece of the puzzle I have to work out is who do I “trust” as trustee when and if my wife and I drop off prematurely…I have been meaning to look into testamentary trusts too for a while, but never get around to it.
They are a very good method of willing assets away. There are various tax advantages such as Children being able to receive funds and pay adult tax rates, instead of the penalty rates for kids (up to 67%).
Also from an asset protection point of view they are good. Say one of your children goes bankrupt, you die and they get your assets – it may all be seized by their creditors. However if your assets went to the trust, then the trustee could avoid distributing to the son until he is out of bankruptcy.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thats alright JL. I am actually studying Estate Planning now as part of my course in Financial Planning. Have a week long course to start in 2 weeks so this is good research. I find this stuff really interesting. Should have an answer for your tonight
OSS
Before we start it is important to recognise that death does not always constitute a disposal of an asset for capital gains tax, but it does constitute an acquisition for beneficiaries.
Testamentary trusts are established by someone’s Will when probate (when the proof of the Will is obtained) is granted. It may be of benefit in your example of protecting your PPOR and other assets from ‘gold diggers’ and the children themselves.
When a minor is listed as a beneficiary of the Testamentary Trust, the income they are entitled to is excepted trust income (will not be subject to penal rates of tax imposed on minors). They will be taxed as an adult ($6000 tax free threshold, then at marginal rates of tax on excess excepted income). This income does not have to be paid to them – it can be used to establish a debt loan account if required.
Stamp Duty – Testamentary Trust is not subject to ad valorem (in proportion to the value – percentage rate) stamp duty. Under the Duties Act 97, a stamp duty of $10 is charged on the transfer of assets through an estate.
Now CGT…
If you pass your house to your children through a Will they will have the option to sell the house within 24 months of the date of death and the sale proceeds are tax free whether or not your children use the PPOR as their PPOR. (NB this is the SETTLEMENT DATE not the date contracts are exchanged) However the beneficiary of the estate must be a natural person – and not a Testamentary Trust.
So in the case of a Testamentary Trust…
PPOR bought after 19 Sept 85, the Testamentary Trust will acquire your PPOR as at the date of death and inherit your cost base of the house at that time. If the Trustee then decides to sell the asset some point later, the capital gains can be distributed to the beneficiaries (children) and possibly receive the 50% discount if held longer than 12 months. This is the same as if for an Investment Property, shares etc..
PPOR bought pre 20 Sept 85 – will be deemed to be acquired by the beneficiary at current market value on the date of death (find yourself a generous valuer in this instance)
Forget about trying to pass the PPOR to a natural person to sell within the 24 months then add the funds from sale to the Testamentary Trust – i think you may be talking to the ATO about Anti-avoidance issues.
Hope this helps. At least now you will have some more facts to talk to your solicitor and accountant about for your advice.
one more thing…
I forgot to highlight if you pass your PPOR to a Testamentary Trust or natural person – there should not be any CGT payable by your estate.
OSS
Thanks for your detailed reply. These are certainly worth looking at.
May I ask you about your financial planning course? Where are you studying and what you think about it?
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry,
I used to work for one of the 4 pillars as a Financial Adviser from 1998-99 and started studying the old Diploma of Financial Planning, but resigned when the job remained at that time a ‘sales job’ – you know sell product – managed funds and poor ones at that, super, insurance etc and not so focussed on providing workable solutions for customers. So i resigned disillusioned and have been working in a totally different industry now (sport and recreation for very large mining company).
I recently restarted studying the equivalent DFP (Advanced Diploma of Financial Services or whatever it is called now) and almost finished it (doing Estate Planning now through Tribeca). Believe me it certainly is not a 1 day course like some other providers.
i know Financial Planners and advisers have copped a lot of stick over the past 4 years and my initial experience certainly did not help my confidence in the industry, but i enjoy finance and miss it tremendously.
The course is very interesting and certainly a lot harder than my first uni degree (anatomy and phyisology). People can bag financial planners saying they are overpaid salesman but i see independant planners as the ones to give you advice on who to go see when it is appropriate (accountant, solicitor, stockbrokers, mortagage brokers, RE Agents, Insurance agents) – kinda like a project manager
Man that was a long answer!!!
Why do you ask?
Thanks OSS.
I was thinking of doing a Dip Fin Planning and was looking at Tribecca. thanks for the info.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
OSS
Thanks for taking the time to research this, will study your reply and use it to help me work out what to do in conjunction with solicitor
JL
Just a follow up here
Completed the Estate Planning Course the other week.
Received 100% for assignment
and 99% for exam……and do you think i was pleased….[biggrin]
OSS
Well done!
So have you finished the Advanced diploma now?
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry
Thank you – this was probably the topic i enjoyed the most so i guess the results showed.
I am 3/4 of the way through it – Currently enrolled in Investment Planning 2 (distance ed) and have yet to do Financial Plan & Construction (last topic). My plan is when i have finished my current project in Weipa i will probably return to Financial Planning – probably 12 months time, maybe less.
OSS
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