Speaker 1: Welcome to the Money Puzzle. I'm your host, Julianne Sprague,
Speaker 1: Wealth editor at The Australian. I'm filling in for James Kirby,
Speaker 1: who is on a well deserved break, and today's guest
Speaker 1: Jason Featherby. He is the co founder and head of
Speaker 1: financial advice at Lure and Wealth. He's got more than
Speaker 1: twenty five years experience in the industry. He is a
Speaker 1: friend of the Australian. He does write for the Dollars
Speaker 1: and Cents column, providing practical tips and guidance for people
Speaker 1: navigating the complexities of managing their money. And Jason, Welcome
Speaker 1: to the Money Puzzle.
Speaker 2: Hi, Jules.
Speaker 3: Great to be on, first time podcaster, time podcaster. Thanks
Speaker 3: so yeah, very excited. Couldn't sleep last night. It's like Christmas.
Speaker 1: You could join us. We'll cover a bit of ground today.
Speaker 1: But I wanted to chat to you for the Money
Speaker 1: Puzzle because a recent column you did, this Dollars and
Speaker 1: Cents column I mentioned that runs in The Australian. It's
Speaker 1: an advice colin. People put their questions.
Speaker 3: And we try and give them a bit of guidance
Speaker 3: and some general advice.
Speaker 1: Yeah, and so one question in particular I thought was
Speaker 1: one that many people are grappling with at the moment.
Speaker 1: It is around gifting to family and what the tax
Speaker 1: implications might be. We are in the midst of an
Speaker 1: intergenerational wealth transfer, and lots of parents, lots of grandparents,
Speaker 1: they're thinking about this idea that they want to be
Speaker 1: able to help their kids or their grandkids. Definitely, and
Speaker 1: they want to do it while they're alive, because there's
Speaker 1: joy in seeing the benefits that money transfer.
Speaker 3: Yeah, absolutely, And I think they read the news and
Speaker 3: watch the news and think, well, their grandkids or their
Speaker 3: kids are going to find it. It's so difficult to
Speaker 3: buy a property now that they do want to help.
Speaker 3: And I reckon that it's taken over as the most
Speaker 3: commonly asked question of a financial advice. It used to
Speaker 3: be how much money do I need to retire? And
Speaker 3: now it is how do I help my kids into
Speaker 3: a house?
Speaker 1: And it's property prices, that is that the property prices
Speaker 1: have hit fresh records this week. People are very concerned
Speaker 1: about that. But for this column, it was Karen who
Speaker 1: wrote in about she owned a city residence and her
Speaker 1: daughter currently occupies that rent free. Wow.
Speaker 2: Oh yeah, no, not bad.
Speaker 1: There's a property you don't even have to live with
Speaker 1: mum or dad and you're getting it for free. That's
Speaker 1: a whole other debate. But Karen said that her daughter
Speaker 1: would inherit the property on her desk, So the plan
Speaker 1: is always that her daughter was going to have this property.
Speaker 1: So now Karen is thinking about gifting this property. You know,
Speaker 1: her daughter's living there rent free. Anyway, I think she's thinking,
Speaker 1: why not, no's gifted. It sounds like such a lovely
Speaker 1: thing to do.
Speaker 2: It's such a simple thing to do.
Speaker 1: It would seem so simple. And Jason and I would
Speaker 1: think about this, and if I own my property with
Speaker 1: my husband, tell her and a bit of the bank,
Speaker 1: and the bank owns it a little bit of it too.
Speaker 1: But for I give at sake, say, I decide, I
Speaker 1: actually just want to give that to my daughter. I
Speaker 1: just want to give that to her. Then I feel
Speaker 1: like that's a gift to her. The tax man should
Speaker 1: just leave me the hell alone.
Speaker 2: But he won't, she won't. They won't.
Speaker 3: You need to be really careful. So and on the
Speaker 3: face of it, I think you nailed it. So it's
Speaker 3: a really nice thing to do, and to be able
Speaker 3: to give a gift while you're here on the earth
Speaker 3: to see the benefits and the joy that gift gives.
Speaker 2: I think is a wonderful thing.
Speaker 3: And if you can, I guess philosophically, I think you should.
Speaker 3: So you should be able to if you can financially
Speaker 3: and you are in a financial.
Speaker 2: Position to do so.
Speaker 3: So we see, as I said, every second person is
Speaker 3: saying I want to help my kids.
Speaker 2: I want to help my kids into a house.
Speaker 3: Do so, yes, but only if it doesn't put your
Speaker 3: own I guess financial future at risk. So you need
Speaker 3: to be in a decent financial position yourself before you
Speaker 3: go down this path.
Speaker 1: So we probably need to explore that and how you
Speaker 1: work that out. But can we discuss why these rules
Speaker 1: are in place and what they might do. So, for example,
Speaker 1: with the current situation, So if she decides she wants
Speaker 1: to gift this unit to her daughter while she's still living,
Speaker 1: what are the implications what happens from a tax?
Speaker 3: Yeah, so from a tax? So this in Karen's instance,
Speaker 3: it's not her house, is it? So it's an investment property.
Speaker 3: It's a property that she owns that she doesn't live in.
Speaker 3: So on gifting of that house to her daughter, there
Speaker 3: will be some capital There will be capital gains implications,
Speaker 3: So what she paid for it and what the value
Speaker 3: is it the day she gifted it?
Speaker 2: So this is important.
Speaker 3: So even if you give it for no consideration, you
Speaker 3: don't receive her send I think that this was Karen's intent.
Speaker 3: The taxman is still going to apply the I guess
Speaker 3: the value on the day it was.
Speaker 2: Gifted, and who works?
Speaker 1: Do they just get a market value?
Speaker 3: They'll get a market value, right, yeah, they'll get a
Speaker 3: market value. The account and will get a market value,
Speaker 3: and they'll say, right, you've sold. You've gifted your house,
Speaker 3: which is effectively a sale for capital gains tax purposes.
Speaker 3: They'll apply that against the cost base. You'll get a
Speaker 3: very generous discount from our government because you've probably held
Speaker 3: it for twelve months. But then there's capital gains tax
Speaker 3: to pay and that might be an unintended consequence of
Speaker 3: this gift. So there's capital gains tax implications which need
Speaker 3: to be considered first of all.
Speaker 1: And so just so, if Karen has held this property
Speaker 1: for a significant amount of time, and given what we
Speaker 1: know that has happened with property prices, she could be
Speaker 1: up for quite a significant tax bill.
Speaker 3: Yes, yep, and she needs to at least address that
Speaker 3: or think about that before she just goes and gives
Speaker 3: it away.
Speaker 1: What happens if the daughter inherits this property from the will,
Speaker 1: So and Karen, I'm sure you're fit and healthy, and
Speaker 1: I wish you a long and prosperous life. Argument sake, yes,
Speaker 1: you know tomorrow something happens to Karen. The daughter inherits
Speaker 1: the property. Does the daughter then have to pay capital
Speaker 1: gains tax?
Speaker 3: Not immediately, So the daughter inherits the cost base of
Speaker 3: Karen the mum. So if Karen paid five hundred thousand
Speaker 3: dollars for it when she bought it, and say it
Speaker 3: was worth a million dollars on her passing, then her
Speaker 3: daughter would inherit a cost base of five hundred thousand,
Speaker 3: and she would be deemed if she lived in it
Speaker 3: to then have moved in at the price of a
Speaker 3: million dollars, and that becomes her residence, so she doesn't
Speaker 3: automatically pay tax, whereas on the gift the mum Karen
Speaker 3: does automatically paid capital gains tax. The daughter only pays
Speaker 3: capital gains tax if she ultimately sells that property and
Speaker 3: if she lives in it for twenty or thirty years,
Speaker 3: it's probably not going to be too much of a problem.
Speaker 1: But if the daughter moved into the property and then
Speaker 1: goes to sell it two years later, is the capital
Speaker 1: gains that she has to pay two or three whatever
Speaker 1: it might be based on the growth from the million
Speaker 1: dollar property that she moved into. No, it's from the existing.
Speaker 3: Yes, So between this price, yeah, it's the purchase price
Speaker 3: and the inheritance price.
Speaker 2: That's her tax.
Speaker 3: That's her tax if she lives in it for two
Speaker 3: or three years and it grows again, it's a principal residence,
Speaker 3: and so there's no tax on that portion of the game.
Speaker 1: Okay, if she sold it straight up, is it better
Speaker 1: to sell property.
Speaker 2: That you inherit straight away? Yeah? Depends on what you need.
Speaker 2: So you're going to pay tax.
Speaker 3: So if you want to live in it, it's probably
Speaker 3: better to defer the tax. If you're going to live
Speaker 3: in it or use it as an investment yourself, then
Speaker 3: why pay the taxman when you don't have to. So
Speaker 3: at least you've got the option as a gift. There
Speaker 3: is no option that gift is a trigger for capital
Speaker 3: gains and you're paying that tax.
Speaker 1: You mentioned. It's becoming an increasing question to you. There's
Speaker 1: becoming the number one question from clients of yours. Now,
Speaker 1: how do I help my kids? And so do we
Speaker 1: feel that the laws might not have kept pace here
Speaker 1: with this property price gross? Because presumably I'm going to
Speaker 1: make assumptions here, but presumably the laws of the way
Speaker 1: they are to stop people shifting their assets around and
Speaker 1: avoiding paying tax.
Speaker 3: Yeah, certainly the government doesn't want people to gift houses
Speaker 3: and not pay tax. So the laws are there so
Speaker 3: to stop you from gifting and avoiding tax. Now, if
Speaker 3: you gift your own house, it's a different story. Karen's
Speaker 3: is an investment property, so she pays that capital gains tax.
Speaker 3: If you were to gift your own principal residents whole
Speaker 3: other conversation, I suppose. But there is no tax on
Speaker 3: your principal residence, so you can pass assets on into
Speaker 3: generationally if it's your private residence, because there's no tax
Speaker 3: on mine. And if I give my house to my
Speaker 3: kids or one of my kids, or Karen does, and
Speaker 3: it was my residence and it's their residence, then there's
Speaker 3: no tax.
Speaker 2: There's no capital gains tax.
Speaker 1: So could Karen gift her daughter the home that she's
Speaker 1: currently living in. It is I've got no idea where
Speaker 1: these properties are. What's this? But Karen gives the daughter
Speaker 1: her primary residence the house she's living in, yep, and
Speaker 1: then Karen moves into the unit.
Speaker 2: Yes, no tax, no capital gains tax.
Speaker 1: But no capital gains tax. So that's how Karen's daughter
Speaker 1: can can own a property and avoid both of them
Speaker 1: avoid paying.
Speaker 2: Capital going capital gains tax.
Speaker 3: Yes, there's still some capital gains tax embedded in that
Speaker 3: investment property, but it's not dealt with until Karen passes
Speaker 3: away or not triggered or passes away and the property
Speaker 3: is sold.
Speaker 2: You can defer it.
Speaker 1: And I'm so sorry, I'm going down so many rabbit
Speaker 1: holes I'm trying. You can see how I'm.
Speaker 2: Trying to get out of paying time.
Speaker 1: I am, I am. I'm helping Karen here. So if
Speaker 1: then could then Karen, who's moved into the unit and
Speaker 1: the unit is her primary residence, then at some point
Speaker 1: in the future gives that unit to her daughter and
Speaker 1: avoid capital gains tax.
Speaker 3: Not avoid it because it's been an investment property for
Speaker 3: the period of time until she moves into it. Okay,
Speaker 3: so she can minimize So she's owned it for three years,
Speaker 3: and you've got this gain. If she then moves in
Speaker 3: and lives in it for twenty more years, then the
Speaker 3: game becomes reasonably marginal in terms of the overall gain.
Speaker 3: So yeah, look, if I was Karen and I was
Speaker 3: hell bent on giving my daughter a property, that's what
Speaker 3: you've just come up with is a reasonably good solution strategy.
Speaker 1: So what's your advice to your clients when they come
Speaker 1: and say, I want to be able to gift, whether
Speaker 1: it's property or money to my kids. Maybe it's about
Speaker 1: there'll be people having conversations about it, wanting gift money,
Speaker 1: to provide a deposit or to at least help my
Speaker 1: kids on their way. What's the what are the tax
Speaker 1: implications for that? And what is your advice to Okay.
Speaker 2: So we've touched on one.
Speaker 3: So the property gifting is actually more a lot more
Speaker 3: rare than giving of cash, so and it has far
Speaker 3: more I guess complications attached to it. So capital gains
Speaker 3: is one in Carriage's because it's a it's an investment
Speaker 3: property she's gifting, But there's also stamp duty payable by
Speaker 3: her daughter on the receipt of that property because she's
Speaker 3: even though she hasn't paid any money. The tax office
Speaker 3: again applies the stamp duty on the market value at
Speaker 3: the time of the transfer. So there's capital gains for
Speaker 3: Karen and there stamp duty for her daughter.
Speaker 1: That seems so unfair though it's really the state government
Speaker 1: should be able to waigh that at least because you're
Speaker 1: there's no treasure that hasn't paid any money for it,
Speaker 1: and yet the government will treat it as a.
Speaker 2: Change of ownership.
Speaker 3: It's the same paperwork as far as the government are concerned,
Speaker 3: is if I was to sell a property to you.
Speaker 1: But the stamp duty on these properties now is quite significant.
Speaker 2: Yeah, the government must be making a fortune on stamp duty. Yeah.
Speaker 3: And the thing about stamp duty, it hasn't been changed
Speaker 3: or the rate of stamp duty hasn't been changed for
Speaker 3: so long, and yet the prices of property have gone
Speaker 3: through the roof. So they're making a lot of money
Speaker 3: that the state government. And yeah, that sugar hits. It's
Speaker 3: hard to unwind, it's hard to give up. They're not
Speaker 3: even likely to.
Speaker 1: Do so, Okay, So it sounds to me that property
Speaker 1: is too difficult, and that's probably adding two inflated property
Speaker 1: prices because people.
Speaker 2: Yeah, it wouldn't help, it wouldn't help.
Speaker 3: And again there's the one less property going in the market,
Speaker 3: isn't there's sort of kept in house, so that doesn't
Speaker 3: help with the supply of property. So property is problematic.
Speaker 3: Cash is a lot simpler. So if you were to
Speaker 3: gift cash, there is no tax ramifications on the gift.
Speaker 2: Tour or the giftee, so no problem. So no problems.
Speaker 1: Okay, So my dad decides I'm going to give jewels
Speaker 1: fifty thousand dollars tomorrow. You can just put fifty thousand
Speaker 1: dollars into my account.
Speaker 3: No problems with me, I can so from a tax
Speaker 3: point of view, no tax on a gift yet in Australia,
Speaker 3: and no tax on obviously receiving a gift. So the
Speaker 3: problems then with the money gift come from if it's money,
Speaker 3: that is your money, it's important to you, and it's
Speaker 3: in the family. What if I was to gift, know,
Speaker 3: you two hundred thousand dollars and then you go and
Speaker 3: split up with your husband and your husband walks away
Speaker 3: with half of my two hundred thousand dollars, So that's
Speaker 3: something to consider. So my view, I think if you're
Speaker 3: going to make large gifts, a be in a financial
Speaker 3: position to do so, and be consider making it a
Speaker 3: loan rather than a gift, so you've got some sort
Speaker 3: of clawback on that money if something were to happen
Speaker 3: to your loved one.
Speaker 1: So let's say you've structured as a loan to me,
Speaker 1: so you get to loan me two hundred thousand dollars.
Speaker 1: Then my husband and I bullit when it comes to
Speaker 1: the asset division. That's treated as.
Speaker 3: A oh if it's a loan, Yeah, it's a loan,
Speaker 3: So it's a liability that you have, and me, as
Speaker 3: the lender, can say, oh, hang on, jewels, you're getting
Speaker 3: you're getting divorced, or you've split up with your husband.
Speaker 2: I want my money back.
Speaker 1: I see.
Speaker 3: So while when you're splitting everything up, pay me first,
Speaker 3: then you can split the rest up.
Speaker 1: Does that then mean that my husband could get less
Speaker 1: from the asset pool because there's a two hundred thousand
Speaker 1: dollars loan and instead of that being one hundred thousand
Speaker 1: dollars each, I actually get two hundred thousand dollars outcause
Speaker 1: of a liability. But that will then reduce the.
Speaker 3: Yes, you pay me back as the lender when your
Speaker 3: divorce or financial settlement is settled, legally, I can relend
Speaker 3: you that I can't I and do it again. So
Speaker 3: it is a good way to protect family money. So
Speaker 3: it is one thing to consider when making a gift.
Speaker 1: Sure, I'm looking forward to you having those discussions with
Speaker 1: your daughters.
Speaker 3: They're only getting loans, there's no gifts.
Speaker 1: Okay, so we probably need to explore We need to
Speaker 1: explore that a little bit further. I think in terms
Speaker 1: about how to protect the transfer of wealth through the generations,
Speaker 1: But just on gifting itself. Is there are some sort
Speaker 1: of caps so.
Speaker 2: They're not too there are yet that then can.
Speaker 1: Affect your eligibility for the age pension.
Speaker 2: Yes, yep, so there are.
Speaker 3: And in your example where you your dad has lent
Speaker 3: you no gifts you fifty thousand dollars if he is
Speaker 3: on an age pension. Weirdly, part of that gift, forty
Speaker 3: thousand dollars of that gift is treated as an asset
Speaker 3: for five years. So you need to be careful if
Speaker 3: you're on an age pension and giving money away, because
Speaker 3: even though you give it away, essentielic is still going
Speaker 3: to assess you was owning most of that for five years.
Speaker 1: Again, this is to try and stop people throwing their
Speaker 1: money left front and center and get under.
Speaker 2: Yeah, under the asset lest asset test limit.
Speaker 3: So you're allowed to give ten thousand dollars a year,
Speaker 3: which doesn't sound a lot.
Speaker 1: It doesn't really sound like much. Has that been changed
Speaker 1: over the years?
Speaker 3: Has that really kept up with twenty You should ask,
Speaker 3: because it hasn't. Two thousand and two was the last
Speaker 3: time the gifting limits were meddled with, So ten thousand
Speaker 3: dollars you're only allowed to give a year or thirty
Speaker 3: thousand dollars over five years for the last twenty three years.
Speaker 1: Do they need to change that?
Speaker 2: They probably should, at least inflate it. So I did
Speaker 2: some numbers on it.
Speaker 3: So in twenty twenty five that ten thousand dollars should
Speaker 3: have roughly doubled, So you should be allowed to give
Speaker 3: now twenty thousand dollars or sixty thousand over three years.
Speaker 3: But it hasn't changed. So it means that you can't
Speaker 3: give much away and or you.
Speaker 1: Have to do it five yes.
Speaker 2: Or give yourself a run up.
Speaker 1: Before sixty seven. So you have to do it before
Speaker 1: you turn sixty two.
Speaker 3: Yes, So if you've plan it out and if you
Speaker 3: and we see this lot, I've paid tax all my life,
Speaker 3: you know I'm entitled to my age pension.
Speaker 2: If that's where you want to head.
Speaker 3: And you say you've got a million dollars in super
Speaker 3: and at sixty two you're retired, you can give five
Speaker 3: hundred thousand dollars of that away. By the time you
Speaker 3: hit sixty seven, that five hundred thousand dollars gift or alone,
Speaker 3: if you get advice, is no longer an asset as
Speaker 3: far as centling a concerner.
Speaker 1: You do that before you're sixty two.
Speaker 2: Yep, because they only assess it for five years.
Speaker 1: Do you think they're likely to change that as this
Speaker 1: intergenerational wealth transfers.
Speaker 3: Moment, maybe like if enough people did it. And I've
Speaker 3: done this for a long time, but I haven't seen
Speaker 3: extreme examples of that. My view of that is, if
Speaker 3: you never if you're fortunate enough to never have to
Speaker 3: walk into a sentilink offers, you should accept that as
Speaker 3: being a pretty good thing, and don't force your way
Speaker 3: into an age pension just because you feel you're entitled.
Speaker 2: I get it. We pay tax all our lives and
Speaker 2: all that.
Speaker 1: Yeah, sure, well I agree with you. I feel like
Speaker 1: that there's if you can. If you can have financial
Speaker 1: indep and you've worked very hard for it, and you
Speaker 1: do not need to rely on the government. We all life.
Speaker 1: That's a great thing, which is why I understand why
Speaker 1: people get so worked up when the government goes to
Speaker 1: change rules, particularly on that superannuation change. Talking about when
Speaker 1: we come back from the break, we might talk a
Speaker 1: little bit more about that. So there are some tricks
Speaker 1: that people are making with sentling to try and that
Speaker 1: we've highlighted at The Australian this week and it's really interesting.
Speaker 1: It's a way around those asset tests and I want
Speaker 1: to get your thoughts on that and whether it might
Speaker 1: be a clever strategy to do it. Basically involves getting
Speaker 1: a better property and getting the age pension at the
Speaker 1: same time. But I also want to get your thoughts
Speaker 1: on whether you should ever really pay off your mortgage.
Speaker 1: There's this growing trend that you should never pay off
Speaker 1: your mortgage. It sounds crazy, but we'll find out why
Speaker 1: when we come back. Welcome back to the Money Puzzle.
Speaker 1: I'm your host, Julianne Sprague, Wealth editor at the Australian
Speaker 1: filling in for James Kirby. He is on a well
Speaker 1: deserved break. He will be back with you shortly And
Speaker 1: I'm chatting to Jason Featherby, head of financial advice and
Speaker 1: a co founder of Lewin Wealth. He's been in the
Speaker 1: game a long time. He's advised people on all sorts
Speaker 1: of strategies and Jason, before we went to the break,
Speaker 1: I mentioned to you about some of the strategies people
Speaker 1: are using to make sure that they can get their
Speaker 1: aged pension and it has raised my eyebrows. James Gerard,
Speaker 1: well known financial planner. He has written about this for
Speaker 1: The Australian about it sounds it sounds nuts to me,
Speaker 1: but I can can't understand how this can work. So
Speaker 1: it is all about getting access to the age pension
Speaker 1: and there is an asset test in place and if
Speaker 1: you don't meet the requirements, no age pension for you.
Speaker 1: But there is some people have found a way around
Speaker 1: and it involves, for Kim sake, taking four hundred or
Speaker 1: five hundred thousand dollars out of your Super three hundred
Speaker 1: thousand whatever it might be, taking a big chunk out
Speaker 1: of Super and upgrading their property so they use a
Speaker 1: huge chunk of money, get a better home, and reduce
Speaker 1: their assets qualify for the age pension.
Speaker 2: Yeah, I like it.
Speaker 3: I mean to put it simply, if you're over the
Speaker 3: asset test limit for an age pension as a couple,
Speaker 3: every ten thousand dollars you can get rid of.
Speaker 2: That means gifting, which we've spoken about.
Speaker 3: Upgrading the house now that could mean literally just renovating it,
Speaker 3: putting a new kitchen in, putting solar panels on, or
Speaker 3: going to the extreme of actually moving house. You get
Speaker 3: seven percent return on that money. So ten thousand dollars
Speaker 3: gives you a seven percent return in extra age pension.
Speaker 3: So in some instances it's actually a pretty good strategy.
Speaker 1: That's not terrible, is it.
Speaker 3: No, Because it's hard to get a seven percent return
Speaker 3: guaranteed for anywhere else.
Speaker 1: The system wasn't designed to do that though, right, like
Speaker 1: the age pension is meant to.
Speaker 3: Be this.
Speaker 1: All people will argue with me. I've got to stay
Speaker 1: safe to that. But I know there'll be lots of
Speaker 1: people arguing that. You said, like people have paid taxes,
Speaker 1: it's my right to it. I'm not sure it was
Speaker 1: designed for this. It wasn't designed to go and get
Speaker 1: marble bench tops that have.
Speaker 2: The state of the art solar panel.
Speaker 1: I'll get a twenty thousand dollars fridge.
Speaker 3: Big holidays, you can go spend some money on holidays.
Speaker 3: In our defense of those that provide these strategies. When
Speaker 3: the age pension was introduced, people didn't live to get
Speaker 3: the age pension, so they thought, we'll offer everyone an
Speaker 3: age pension at sixty two wherever the original age was.
Speaker 3: But I think the average life experience was probably fifty
Speaker 3: eight or something, so it was never going to be
Speaker 3: a big cost. Now it's sort of crept up on
Speaker 3: the government and it's now a huge cost, and they
Speaker 3: don't want us doing these things. But the rules are
Speaker 3: in there to legitimately have a better house, get an
Speaker 3: age pension, and for some people, and I think if
Speaker 3: your marginal, so if you've got I don't know, eight
Speaker 3: hundred thousand dollars, say, and you can get rid of
Speaker 3: two or three hundred thousand and get a better house,
Speaker 3: maybe make a gift to the kids, prepay a funeral,
Speaker 3: other things that are not asset tested, and get paid
Speaker 3: well to do it. Then why not if you have
Speaker 3: three million dollars in super and you take two and
Speaker 3: a half million dollars and buy a mansion in del
Speaker 3: Keith to get a full age pension, I'd be saying,
Speaker 3: what are you doing? So everyone should get their own
Speaker 3: advice on this, But for some it's a really good
Speaker 3: strategy and for some you just why is the risk?
Speaker 1: Then if you pour all of that asset then into
Speaker 1: climb a home or ice.
Speaker 3: Property, you've got less money. So you've got less money
Speaker 3: and you don't know exactly depending on your living costs.
Speaker 3: The age pension sounds wonderful, but what is It's forty
Speaker 3: odd forty five thousand dollars a year for a couple.
Speaker 3: It doesn't meet on its own even enough to meet
Speaker 3: and make a modest retirement living. So you don't want
Speaker 3: to give all your money away just to get forty
Speaker 3: five thousand dollars and have no money because you'll need
Speaker 3: new cars, you'll have poor health, sadly to a lot
Speaker 3: of people, you might want to go on holiday. Heaven forbid,
Speaker 3: you might end up in age care and you might
Speaker 3: end up in age care at the same time, So
Speaker 3: where do you get the money to pay for that?
Speaker 3: And so that's why I think again, if you can
Speaker 3: avoid centre link because you have enough money. You're in
Speaker 3: a really good position, and I certainly wouldn't go forcing
Speaker 3: the issue just to get a bit more help from
Speaker 3: the government if you are wealthy.
Speaker 1: But when you're saying borderlines, So what's your view of, I.
Speaker 3: Reckon scept Yeah, six to eight hundred thousand dollars of
Speaker 3: accessible assets. That extra two or three hundred thousand dollars
Speaker 3: can do a lot in terms of housing, solar panels,
Speaker 3: gift for kids and things like that. And you are
Speaker 3: by getting your assets down two or three hundred thousand
Speaker 3: dollars and leaving yourself with five hundred thousand, for example,
Speaker 3: it's still enough money to have access to and you're
Speaker 3: going to get a much higher pension or bigger bang
Speaker 3: for your buck in terms of the money that you
Speaker 3: legally get rid of. If you've got three hundred thousand
Speaker 3: dollars in super few other things and you're already getting
Speaker 3: most of a pension and you go buy a new
Speaker 3: house and you get a tiny bit more pension, you know,
Speaker 3: I'd question why it makes sense. So it's when you're
Speaker 3: in that sort of it's almost middle income, middle age
Speaker 3: or middle wealth zone where you can do a bit
Speaker 3: of clever stuff with assets and the age pension.
Speaker 1: Right for the picking.
Speaker 3: Great place to give advice, but don't go forced this
Speaker 3: uear by spending a million dollars on an extra house,
Speaker 3: or you know, giving a million dollars away to kids,
Speaker 3: leaving yourself with four hundred and fifty thousand, because you
Speaker 3: just don't know what's around the corner with your health
Speaker 3: or with what you might need.
Speaker 1: So before we get to why you might never want
Speaker 1: to pay off your mortgage, can you articulate how you
Speaker 1: can determine your financial position You mentioned earlier when you're
Speaker 1: trying to work out gifting, So whether that's gifting a property,
Speaker 1: gifting money to the kids, how do you determine that
Speaker 1: you're in the financial actual shape to do it. Because
Speaker 1: it's a very emotional, particularly when it comes to family
Speaker 1: and kids, that there is this drive and this desire
Speaker 1: to really help.
Speaker 3: Them, to really help because they're our kids, so we
Speaker 3: understand that, but look to put it really simply, you
Speaker 3: should be in a financial position where you have no
Speaker 3: debt or it's pretty much gone.
Speaker 2: And if.
Speaker 3: You didn't have this money because you've gifted it away
Speaker 3: or lent it, it's not going to impact your ability
Speaker 3: to generate an income in retirement. So you should have
Speaker 3: enough other assets to generate a passive income for you
Speaker 3: to live comfortably in the retirement that you want. So
Speaker 3: they're the two basic ones. No debt and enough assets
Speaker 3: to produce the income that you need. If you're not there,
Speaker 3: then I'd think very carefully about giving money away to
Speaker 3: kids that still have time to get there.
Speaker 2: You're there, you know.
Speaker 3: If you're not there, and if you've got debt or
Speaker 3: if you haven't got enough insupor to live off, and
Speaker 3: you're giving away or proposing to give away hundreds of
Speaker 3: thousands of dollars, probably don't you.
Speaker 1: We have to counsel clients then away from this. All
Speaker 1: the time they've come to you, they are dead set
Speaker 1: going to gift money or do whatever it was to
Speaker 1: help their kids, and you've actually had to point out
Speaker 1: you actually really aren't in.
Speaker 3: Yeah, the financial and you do it from you're my clients,
Speaker 3: and I'm here to help you and allowing this or
Speaker 3: I guess indulging this or accepting this gift or loan
Speaker 3: or whatever we want to do is going to leave
Speaker 3: you short or it's going to put your own retirement
Speaker 3: at risk, and you're mad.
Speaker 1: And do they get concerned about what their kids will say?
Speaker 3: I do.
Speaker 1: I am worried about this sense of entitlement that's brewing
Speaker 1: in a generation.
Speaker 2: There is and they do, Yeah, they do.
Speaker 3: And so some people don't want to draw down on
Speaker 3: this super because they want to leave it all to
Speaker 3: their kids and want to make sure they have every
Speaker 3: cent left for their kids. And my view of that is,
Speaker 3: like you were kids, we were kids, will be okay.
Speaker 3: Generations of kids have been okay. Why do we suddenly
Speaker 3: need to give everything up for our kids? Like, yes,
Speaker 3: help them, love them, but don't do it to your
Speaker 3: own detriment.
Speaker 1: It's their time to make their way in the world,
Speaker 1: their adults.
Speaker 3: Now, that's what I think. Yeah, So unless you are
Speaker 3: very comfortable, then I'm all for it. If you're not
Speaker 3: comfortable yourself, then I'm dead against it. Don't do it
Speaker 3: unless you are in a position to do so.
Speaker 1: All right, let's move to this topic about paying your
Speaker 1: mortgage off. I was always told it was the one
Speaker 1: thing you should focus on. Pay off your mortgage. Don't
Speaker 1: do anything else, pay it all off.
Speaker 3: I still still think that's the thing to do well
Speaker 3: to pay them off in the main.
Speaker 1: Yes, but there is this theory that you should pay
Speaker 1: it well off except never close it out. So just
Speaker 1: have a little bit sitting in there, or maybe it's
Speaker 1: technically paid off, you've just you have sitting in there
Speaker 1: or something. Why would you not just close out your mortgage?
Speaker 1: I picture a day, Jase, I picture a day. I
Speaker 1: just I feel like there will be a ticket take parade.
Speaker 1: I feel like there will be fireworks. Yes, it will
Speaker 1: be a spectacular event. Paid off the mortgage, it is
Speaker 1: a zero dollar balance. Close it out, Thank you very much,
Speaker 1: see you later.
Speaker 3: I don't even think you get your certificate of title anymore.
Speaker 3: I think they're all digital, aren't they. So you know
Speaker 3: you used to go to the bank and collect your
Speaker 3: title when you're paid off your debt.
Speaker 2: That's a symbolic event, but that digital.
Speaker 3: I don't like it, sadly that touch and fairly aspect
Speaker 3: that it's gone. Even with your certificate of title, you'll
Speaker 3: never see it unless you sort of you've already got
Speaker 3: it and long held it.
Speaker 1: Why should I not ever close out the mortgage?
Speaker 2: There is a school of thoughts.
Speaker 3: So again my view is, if you've got enough in
Speaker 3: super and you're comfortable. I can't see the harm in
Speaker 3: closing off your mortgage, and I know we'll touch on it,
Speaker 3: but I've got a different view on credit cards. But
Speaker 3: so the mortgage is, if you leave it open, it's accessible,
Speaker 3: and people think, oh, I just in case I need it,
Speaker 3: just in case I need it.
Speaker 2: But what if you're not.
Speaker 3: Very good with money and you just need it way
Speaker 3: too often? Then you can go from a period of
Speaker 3: having paid off your mortgage left it open, then because
Speaker 3: you're not very good with money, you've gone on three
Speaker 3: overseas trips, bought the kids a car, and suddenly you've
Speaker 3: got two hundred thousand dollars a debt that you didn't
Speaker 3: know where it came from. So if you're not very
Speaker 3: good with money, or you don't think you're going to
Speaker 3: be very good with money, then keeping access to a
Speaker 3: heap of debt is not the best thing.
Speaker 1: Okay, So definitely close it out.
Speaker 2: Oh if you can, Yes, I would.
Speaker 1: But what happened. So as much as I would love
Speaker 1: to tell you I'm so far ahead of my mortgage
Speaker 1: and it will be sometime in the next year I've
Speaker 1: paid it off, I have Buckley's chance of that it
Speaker 1: will be as I'm older, and then I get concerned
Speaker 1: about access to a line of credit. So if I
Speaker 1: close out the.
Speaker 3: Mortgage, where do I get emergency or rainy day money from?
Speaker 1: Yes, something comes out of left field, and all of
Speaker 1: a sudden, I go to the bank and say, hey,
Speaker 1: you know need alone. And where they're a bit agist.
Speaker 3: Banks, they're very agist, and they're very incomist, which they yeah.
Speaker 1: That's probably what they are. They're incomist from which.
Speaker 3: I don' have no issue with being incommistries.
Speaker 1: Inventor worked he did incomist Okay, I don't mind it either.
Speaker 1: They care about your income.
Speaker 2: They care about your income and your ability to repay.
Speaker 3: So even if you've got access to a million dollars
Speaker 3: a super and you're retired because you've got no wage,
Speaker 3: the bank, a bank will be very reluctant to give
Speaker 3: you debt, which is to your point, not keep that
Speaker 3: mortgage open. I prefer to keep a credit card available,
Speaker 3: a low cost, not one of these fancy credit cards,
Speaker 3: low interest rate credit card.
Speaker 1: It is easy to it's easy to rack up a
Speaker 1: bit of down on that it is.
Speaker 3: But it might be five or ten thousand rather than
Speaker 3: two unpaid mortgage just.
Speaker 1: On credit cards. I had not thought about this, this
Speaker 1: idea that you should have a credit card in your
Speaker 1: own name rather be the secondary holder. Now, in my household,
Speaker 1: we always have a secondary holder because you've bother with
Speaker 1: all the paper work and mine.
Speaker 3: Yeah, but if you and again, if you're both working,
Speaker 3: not a problem of generally not a problem if you're
Speaker 3: retired and you've got no income wage income, and you
Speaker 3: have a credit card with a secondary card and the
Speaker 3: primary card holder dies.
Speaker 1: Yes, So, for argument's sake, my husband and I have
Speaker 1: a credit card. He's a primary holder. I'm a secondary holder.
Speaker 1: Love your honey. Something happens and then I think I
Speaker 1: can continue to use this. I've used his cards for
Speaker 1: however many years, but because he is the primary holder,
Speaker 1: it is in his name, and so it gets extinguished,
Speaker 1: and then it might be difficult for me to get
Speaker 1: my own card.
Speaker 3: It might be difficult for you, but you have a
Speaker 3: job and your work. If you're seventy years old and
Speaker 3: that happens, it's impossible. So it's I think it's important
Speaker 3: to have just a low cost.
Speaker 1: So low fee, low cost. It's a burnerchard it's pretty
Speaker 1: much it's literally an emergency card. An emergency card, put
Speaker 1: it in the bottom drawer, but make sure you've got
Speaker 1: access to it. At what age do people be thinking
Speaker 1: that they should do that? Every couple should have a card.
Speaker 3: In therea while you're working, and you can so because
Speaker 3: when you're not working, it becomes very difficult to get
Speaker 3: a credit card, no.
Speaker 2: Matter how old you are.
Speaker 3: So while you're working, you can still have the main
Speaker 3: credit card with a secondary card attached. But just for
Speaker 3: that for your spouse, have another credit card that you
Speaker 3: just never use, and just make sure it's low cost
Speaker 3: or no cost. Don't need the frequent flowers and all
Speaker 3: that stuff. No fees, no fees, so and you can
Speaker 3: get them.
Speaker 1: Jason, we need to get to a break and when
Speaker 1: we come back, we have some listeners with some pretty
Speaker 1: good questions. I reckon Andrew's written in about gifting rules,
Speaker 1: and Brian wants to know if super automatically passes to
Speaker 1: a spouse upon death, and so we will get to that,
Speaker 1: all right, We'll have that discussion when we come back.
Speaker 1: Welcome back to the Money Puzzle. I'm joined with Jason
Speaker 1: Featherby from Lewin Wealth. I'm your host, Julianne Sprague, Jason.
Speaker 1: We've had some listeners email the Money Puzzle. The Money
Speaker 1: Puzzle at the Australian dot Com dot au is where
Speaker 1: you can send your questions to. But Andrew has emailed,
Speaker 1: and he has mentioned about this ten ten, one thousand
Speaker 1: dollars gifting cap. He did want to know if they
Speaker 1: had any if there had been any discussions about ever increasing.
Speaker 2: I don't think so.
Speaker 3: It is weird because we talk about deeming, we talk
Speaker 3: about indexing the age pension rates, and we talk about
Speaker 3: indexing the asset test limits. I don't know it would
Speaker 3: have been discussed, but I've never heard anyone suggest that
Speaker 3: it should be higher. But clearly, what did I say
Speaker 3: twenty years.
Speaker 1: We've put it on the agenda right here at the
Speaker 1: Money Puzzle. We'll put it, Sir Jim Chalmers. Shall we
Speaker 1: Andrew and we'll see what he's got to say about that? Okay, Andrew,
Speaker 1: His question is around this gifting rule, and so, for
Speaker 1: argument's sake, so he understands that the ten if you
Speaker 1: gift ten thousand.
Speaker 2: Dollars cash to someone, it's a gift.
Speaker 1: That's a gift, and that's it and qualifies as a gift.
Speaker 1: But Andrew says, what if this particular Soviet the pensioner
Speaker 1: or parent was to pay for a child or a
Speaker 1: grandchild's bill. So there's a bill to pay. Is that
Speaker 1: a gift or is that simply kindness and helping a
Speaker 1: family member out? I mean, surely if you're paying for
Speaker 1: a family meal, that's not considered.
Speaker 3: I think there's probably a materiality thing here. A meal
Speaker 3: you'd get away with ord imagine.
Speaker 1: So what if I I mean ten thousand dollars is
Speaker 1: not is school fees?
Speaker 2: Potentially that'd be a gift.
Speaker 1: What do you mean it's a gift? They're paying a bill.
Speaker 2: Yeah, well, you're gifting the money to pay the bill.
Speaker 2: I think.
Speaker 3: I think the rules are you're not receiving anything in return,
Speaker 3: so therefore it's a gift. So buying a car, paying
Speaker 3: school fees, things.
Speaker 2: Like that gifts.
Speaker 1: What if they were micro So what if they were
Speaker 1: ten one thousand dollar lots? So what if the someone
Speaker 1: said i'll pay your power bills for the year. Government's
Speaker 1: been gifting that left right and center?
Speaker 3: True, just call it a rebate or a supplement and
Speaker 3: you might get away with it.
Speaker 1: Does the taxman or centily how do they keep tabs
Speaker 1: on this.
Speaker 3: It's very much an honor system in terms of the gifts.
Speaker 3: But they also do have access to your bank account.
Speaker 3: So if you were giving someone a thousand dollars a
Speaker 3: month and it was every month.
Speaker 2: You'd get caught.
Speaker 3: Okay, if it was a thousand here and a thousand there,
Speaker 3: and it's a bit random and you paid for you
Speaker 3: odd meal or even you did their shopping, you could
Speaker 3: wouldn't even know that someone else's shopping. But when you're
Speaker 3: buying school fees, cars, regular amounts their gifts and be
Speaker 3: really careful.
Speaker 1: Okay, Andrew, thank you very much for the question Brian
Speaker 1: wants to know. Is super automatically passed to a spouse
Speaker 1: upon death.
Speaker 3: Not automatically, probably, is the answer, but not automatically. So
Speaker 3: if you have a very clean life and you've only
Speaker 3: had one spouse and there's not much room for error,
Speaker 3: then it's likely that your super would go there. But
Speaker 3: your super is where it goes is dictated by the
Speaker 3: super fund trustee, So whoever's the boss of that fund
Speaker 3: will decide where your money goes. So if you want
Speaker 3: to be absolutely certain, spouse or otherwise, you make a
Speaker 3: binding nomination in favor of your spouse, and then it
Speaker 3: leaves no room for error, no room for judgment, and
Speaker 3: no chance that an ex spouse or a challenge to that.
Speaker 3: I guess that passing of that money will come about.
Speaker 1: Okay, So it's not automatic. You have to do something
Speaker 1: about it.
Speaker 3: You don't have to, but you should, you really should so,
Speaker 3: and it's not hard. So it's part of your super
Speaker 3: fun setup. Or you just do a binding nomination in
Speaker 3: favor of your spouse. It means that when that if
Speaker 3: you pass away, the trustee will automatically pay that money
Speaker 3: to the spouse rather than go and look for other
Speaker 3: people to give it to first, which is what they
Speaker 3: would do with no nomination.
Speaker 1: Okay, notice binding nomination, easy enough to do.
Speaker 2: One page, one tick wow spouse.
Speaker 1: Jason, thank you very much for joining us on the
Speaker 1: money Puzzle.
Speaker 2: It's been a pleasure, it's been fun. Thank you.
Speaker 1: Jason Featherby from lun Wealth and will be back with
Speaker 1: the money Puzzle next week. I am Julie and Sprague,
Speaker 1: wealth editor at the Australian. For more insights on what
Speaker 1: the smart money is doing, you can go to the
Speaker 1: Australian dot com dot au slash wealth