Our Wealth Management team are increasingly seeing clients who are asset rich and cash flow poor in their 60s, 70s or 80s. Often these clients have been highly successful in acquiring property assets that have significantly increased in value. However, with land tax and other maintenance expenses, the actual net income is quite low relative to the asset’s value, leaving the clients short of cash to pay tax and their living costs.

The BYRONS Wealth Management team are sharing a series of articles on Legacy Planning. In our previous article, we explored legacy planning is about more than just the distribution of assets; it’s about ensuring your values and wishes are carried down for generations to come.

Some of our clients, see their property assets as something they have grown to pass on to their children and/or grandchildren as an enduring legacy. What often becomes clear is that the children or grandchildren have not been a part of the discussion about these assets, or how they may best benefit them over time.

An example comes to mind of a couple in their early 80s, with two children in their early 50s and several grandchildren. This couple own a 10 unit apartment block worth about $10m and receives gross rent of $300,000 per annum. After land tax of $100,000 and expenses, the apartments generate about $120,000 in income per annum.  Based on an asset value of $10m, this is an income return of just 1.2% per annum.

If the units were sold, there would be $5.5m capital gain resulting in a tax of about $1.25m. The cash released after tax would be $8.75m.

In releasing the cash, the couple would be able to assist their two children now with $1m off their mortgages and could then invest the rest via a family trust. The investments could potentially generate an annual income of $465,000 (a high 6% p.a. return) which the couple can use to fund their lifestyle, assist their grandchildren and use a corporate beneficiary to further delay the payment of tax if desired.

The net result of the decision to sell would be to enable the couple to assist their children and grandchildren now, rather than when they pass from their estate. Furthermore, they would be able to generate an income for an improved lifestyle for themselves.

The family legacy could now be held as investments within a family trust that has an 80 year life and allows for simpler transfer of assets in the estate. Furthermore, by introducing their children into investing the funds in the family trust, the parents can also help their children understand how to manage large amounts of money.

Our Wealth Management team can assist clients to build enduring family legacies tax effectively and in asset mixes that will improve in value over time and be relatively simple to manage.

At BYRONS, we have a team of highly experienced wealth management professionals, led by Director Jonathan Young. Jonathan has dedicated his career to financial planning and has accumulated over 20 years of expertise. He and his team specialise in aligning client objectives with their unique skills and expertise to deliver the best possible outcomes. Contact Jonathan today for an obligation free meeting at no cost to you to see what options are available to you and your wealth.

Disclaimer: The information above is intended as general information only and should not be taken as advice. No action should be taken prior to taking financial advice tailored to your personal circumstances.

Byrons PWS Pty Ltd as Authorised Representative of Professional Wealth Services Pty Ltd | ABN: 58 174 609 776 | AFS Licence Number 312047

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