Latest / The Money Puzzle / We have to talk about the inheritance tax on super (with Noel Whittaker)

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We have to talk about the inheritance tax on super (with Noel Whittaker) · The Money Puzzle

• 0:22
  Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
• 0:25
  Speaker 1: James Kirby, wealth editor at The Australian. Now, welcome aboard, everybody.
• 0:30
  Speaker 1: My guest today is a special guest, a special guest
• 0:33
  Speaker 1: with a capital G. He is quite simply the doyen, really,
• 0:40
  Speaker 1: of personal finance investment in Australia, author of Money financial books,
• 0:45
  Speaker 1: including Making Money Made Simple, which is, I would reckon,
• 0:51
  Speaker 1: on just about every shelf of every home that anyone
• 0:56
  Speaker 1: who ever really wanted to get a grab on how
• 0:59
  Speaker 1: it all works. I see he's had 25 editions of
• 1:04
  Speaker 1: that book, which has got to be a record. It's,
• 1:07
  Speaker 1: of course, Noel Whittaker, and I'm delighted to have him
• 1:10
  Speaker 1: on the show. He's just produced his latest book, which
• 1:13
  Speaker 1: is called Wills, Death and Taxes Made Simple. Hi, Noel.
• 1:19
  Speaker 1: How are you?
• 1:19
  Speaker 2: Hi, James. Great to be with you. I've been a
• 1:21
  Speaker 2: great fan of your podcast for a long time, so
• 1:23
  Speaker 2: it's great to talk.
• 1:25
  Speaker 1: Oh, thank you very much. Thank you very much. Well,
• 1:27
  Speaker 1: there you are. Mutual admiration society of two straight away.
• 1:31
  Speaker 1: But tell me about the, yeah, Making Money Made Simple.
• 1:34
  Speaker 1: I presume that's your biggest seller of all the books,
• 1:37
  Speaker 1: is it? I'm only guessing.
• 1:38
  Speaker 2: Yes, I would think so. And so many people call
• 1:41
  Speaker 2: it Making Money Made Easy. And there's no connection between
• 1:46
  Speaker 2: simple and easy. It's simple, but simple need not be easy.
• 1:53
  Speaker 1: We have a joke, basically, inside The Australian. Now that
• 1:56
  Speaker 1: we can see so easily how stories perform and all that,
• 2:02
  Speaker 1: and you can measure, you know, how many people read it,
• 2:05
  Speaker 1: how long did they read it for, etc., We have
• 2:08
  Speaker 1: a joke that, like in personal finance, if you want
• 2:10
  Speaker 1: a story to go really well, all you have to
• 2:12
  Speaker 1: do is put a headline on it which says, like,
• 2:15
  Speaker 1: how to make a million easy. And it will always
• 2:19
  Speaker 1: be read because there's always this demand, isn't there? There's
• 2:22
  Speaker 1: always this misapprehension, I suppose, that you can make money
• 2:28
  Speaker 1: easily or without taking a risk or without thinking about it.
• 2:32
  Speaker 1: And I think that's something that you've always worked on
• 2:34
  Speaker 1: and challenged, really. But at the same time, as you say,
• 2:37
  Speaker 1: it can be done.
• 2:39
  Speaker 2: Well, look, I've never been one for sensational headlines. If
• 2:44
  Speaker 2: I could write a headline, market's about to crash. Yes.
• 2:47
  Speaker 1: And it would do well, Noel. It would do well.
• 2:49
  Speaker 2: Yes. It would do very well. But the whole thing
• 2:52
  Speaker 2: about making money is it happens slowly. And compounding is
• 2:57
  Speaker 2: the secret. But compounding is slow to start and gets
• 3:02
  Speaker 2: faster and faster as time passes. I tell the story
• 3:06
  Speaker 2: of the lily in the pond that doubles every day
• 3:10
  Speaker 2: and fills the pond in 10 days. How long to
• 3:14
  Speaker 2: go from quarter full to full? The answer is two days,
• 3:20
  Speaker 2: quarter to half on the ninth and half full to
• 3:23
  Speaker 2: full on the 10th. Now, if that 10 days is
• 3:27
  Speaker 2: your investment timeframe and you, because you start late or
• 3:32
  Speaker 2: cash early, If you've only got eight days, you miss
• 3:36
  Speaker 2: out on three quarters of what you would have had. Basically,
• 3:41
  Speaker 2: investment's all about time in.
• 3:43
  Speaker 1: And I suppose the corollary of that is to start
• 3:47
  Speaker 1: as soon as you possibly can.
• 3:49
  Speaker 2: Always. I spoke to a bloke last week. He's now
• 3:53
  Speaker 2: worth about $ 400 million. He said, I was in school
• 3:57
  Speaker 2: at 15, and you came and gave a talk to
• 3:59
  Speaker 2: the kids, and you talked about compound interest, and that
• 4:02
  Speaker 2: was life-changing for me. Yes.
• 4:07
  Speaker 1: It's something I think that's even more relevant now with
• 4:09
  Speaker 1: property prices where perhaps earlier generations, it was a choice.
• 4:15
  Speaker 1: Would you like to be wealthy? Would you like to
• 4:17
  Speaker 1: make money? This current generation, it's like if you want
• 4:21
  Speaker 1: to buy a house, you have to make money. you
• 4:25
  Speaker 1: must make that deposit. It's become more compulsory, or at
• 4:28
  Speaker 1: least mandatory, I think, for this generation than your generation
• 4:32
  Speaker 1: or my generation, I think.
• 4:33
  Speaker 2: Well, I think back about 1975, we were building houses.
• 4:37
  Speaker 2: And the house was $ 30, 000 in Brisbane, a low-set brick.
• 4:42
  Speaker 2: That was two years' income. And people borrowed money at 14%.
• 4:46
  Speaker 2: The same house is 10 times dearer at $ 800, 000. So,
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  Speaker 2: They've just got so much more expensive in real terms.
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  Speaker 2: That's the problem.
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  Speaker 1: That is the problem. I want to talk about your
• 5:02
  Speaker 1: book in a second and the issues. I just want
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  Speaker 1: to ask you one quick thing, if I could. I
• 5:06
  Speaker 1: had a guest on Tuesday, Duncan Perkins, an accountant who
• 5:10
  Speaker 1: was very good. And we mentioned on the show that
• 5:13
  Speaker 1: you were coming on today. And he said, Noel is
• 5:16
  Speaker 1: very skeptical about investment property. and that he certainly was
• 5:22
  Speaker 1: of the impression that you believe that in terms of
• 5:25
  Speaker 1: making money, there's a lot of easier ways and more
• 5:28
  Speaker 1: reliable ways than investment property. Our shows on Tuesday tend
• 5:32
  Speaker 1: to concentrate on investment property. Is that your sort of disposition?
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  Speaker 2: It's been my experience, James. I've just sold a property
• 5:40
  Speaker 2: for $ 700, 000, which cost me $ 220, 000 in 2000. That's 24 years.
• 5:48
  Speaker 2: The same money in shares would be worth, in the index,
• 5:52
  Speaker 2: which would be worth $ 1. 5 million. Now, I sold this
• 5:57
  Speaker 2: because I got sick of it. I had to sell it.
• 6:00
  Speaker 2: Now I'm going to pay $ 100, 000 in capital gains tax.
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  Speaker 2: If that would have been in shares, there's never a
• 6:08
  Speaker 2: need to sell. So if you've got property, you need
• 6:11
  Speaker 2: to turn it over and make it better and improve it,
• 6:14
  Speaker 2: and that's got massive costs. plus the land tax and
• 6:18
  Speaker 2: the rates and the insurance, you could buy an index
• 6:22
  Speaker 2: fund which requires no decisions and you set and forget.
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  Speaker 2: It's done 9% total for 120 years. It's hands down
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  Speaker 2: the best.
• 6:33
  Speaker 1: Right.
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  Speaker 2: Okay.
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  Speaker 1: But I suppose you would allow that every property is
• 6:38
  Speaker 1: individual and there will always be individual properties. Always.
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  Speaker 2: But the whole thing is, There's no such animal as
• 6:47
  Speaker 2: the property market. There might be Point Piper and Cairns
• 6:51
  Speaker 2: and Mount Isa and Perth, you know, and some are
• 6:54
  Speaker 2: going well and some aren't. About shares, you can start
• 6:58
  Speaker 2: with bug rule anyway. That's the great thing about shares.
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  Speaker 1: It is. It is, absolutely. Okay, terrific. Now, let's talk
• 7:05
  Speaker 1: about your new book, which I can tell you, like
• 7:08
  Speaker 1: everyone else, I'm only human, and many people have asked
• 7:13
  Speaker 1: to come on the show and talk about wills. and
• 7:16
  Speaker 1: estate planning. And I have resisted it because I think
• 7:21
  Speaker 1: someone has to be very good and very articulate to
• 7:24
  Speaker 1: actually make it interesting. And you've just done this book
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  Speaker 1: on this whole area. And there's a couple of points
• 7:31
  Speaker 1: I know that you really wanted to make. One was
• 7:33
  Speaker 1: about reviewing your will regularly. If you don't review your
• 7:39
  Speaker 1: will regularly, does it become null and void?
• 7:43
  Speaker 2: No, it doesn't become null and void, but it may
• 7:45
  Speaker 2: be out of date. I mean, since you made the, well,
• 7:49
  Speaker 2: most people make the will at age 48. Reason is
• 7:53
  Speaker 2: that's when their parents are 80 and they're thinking about
• 7:55
  Speaker 2: the inheritance. You know, but you may have extra kids.
• 8:03
  Speaker 2: There may be relationship breakdowns. One of your kids might
• 8:05
  Speaker 2: have got divorced. There's also, you may have changed houses.
• 8:10
  Speaker 2: It's important that your estate reflects the circumstances of the time.
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  Speaker 2: That's why we say at least every three or four years,
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  Speaker 2: review your will. But don't forget too, it's four specialties.
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  Speaker 2: Estate planning is law and tax and superannuation and all
• 8:27
  Speaker 2: the financial planning stuff such as aged care. So it's
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  Speaker 2: a multi-disciplinary area. Yes.
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  Speaker 1: Every four years is your recommendation.
• 8:38
  Speaker 2: Well, not so much that so much. Every time there's
• 8:41
  Speaker 2: a change of circumstance. Yeah, yeah.
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  Speaker 1: Or life, major life events.
• 8:44
  Speaker 2: Major life events.
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  Speaker 1: I mean, very obvious ones being a divorce, for instance. Okay.
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  Speaker 2: Or the parent's death, you know, or parents to aged care. Also,
• 8:55
  Speaker 2: these days, people are living longer and older relationships are
• 8:59
  Speaker 2: becoming more common. There's two couples and one partner dies
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  Speaker 2: in each and they repartner. And that's a whole new
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  Speaker 2: ballgame again. They want to keep their money for each side.
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  Speaker 2: They don't want it intermingled.
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  Speaker 1: You're right. Okay, so let's say that happens. Then what
• 9:20
  Speaker 1: would be the pathway for that in the case where
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  Speaker 1: the couple remarried, where the two individuals who were left widowed,
• 9:28
  Speaker 1: if you like, remarried, and they came to you or
• 9:32
  Speaker 1: someone like you, what would your advice be?
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  Speaker 2: Well, first of all, people don't understand, but you can
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  Speaker 2: have a house as joint tenants or as tenants in common.
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  Speaker 2: On death, joint tenancy automatically goes to the survivor. And
• 9:48
  Speaker 2: that's the way most young couples hold the house. But
• 9:52
  Speaker 2: if you're a second relationship, it's normally tenants in common.
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  Speaker 2: So you could individually leave your share to your own side.
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  Speaker 2: There's also a trick. Let's say that a couple marry
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  Speaker 2: and their resources are a little bit out of balance
• 10:09
  Speaker 2: and say that she gets sick and needs to go
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  Speaker 2: to a nursing home. He pays the half a million
• 10:15
  Speaker 2: dollars for the bond. On her death, that goes to
• 10:19
  Speaker 2: her estate automatically. So his estate is missed out on
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  Speaker 2: half a million dollars. Now, the way around that is
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  Speaker 2: he makes a loan to her of half a million dollars.
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  Speaker 2: Problem solved. It's easier to solve a problem in advance.
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  Speaker 1: It is, of course.
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  Speaker 2: Absolutely, it is.
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  Speaker 1: I wondered, just on that whole area, and it's a
• 10:42
  Speaker 1: difficult area, of course it is, and aged care and
• 10:46
  Speaker 1: aging of Australia, but a huge issue. And finally, some
• 10:50
  Speaker 1: breakthrough in recent times about aged care, which cuts to
• 10:54
  Speaker 1: the chase. Basically, people who are self-funded retirees may end
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  Speaker 1: up paying about $ 9, 000 more than they might have been
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  Speaker 1: under the old regime.
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  Speaker 2: And it's complex. Aged care is the most complex topic
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  Speaker 2: I know.
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  Speaker 1: Yes. And it's difficult. I mean, it's difficult for everybody to...
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  Speaker 1: including the sons and daughters of the person who are
• 11:22
  Speaker 1: only human and in making decisions financially for their parents,
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  Speaker 1: only someone with no emotions at all could separate the
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  Speaker 1: fact that their inheritance is shrinking, basically, on the basis
• 11:35
  Speaker 1: of some of the decisions they might make in relation
• 11:37
  Speaker 1: to aged care. That's something that everybody has to face.
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  Speaker 1: One of the things you bring up, enduring powers of attorney,
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  Speaker 1: Which sounds, could you first of all explain what that is?
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  Speaker 1: And I just want to explain also, I want to
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  Speaker 1: bring up the point then as to, it sounds great,
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  Speaker 1: but what if the person says no? If the person says, yeah,
• 12:01
  Speaker 1: when it comes to that stage that I have lost
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  Speaker 1: my capacity, I'll sign it. But of course, it's too
• 12:08
  Speaker 1: late then. I bet that happens all the time. But
• 12:10
  Speaker 1: could you explain what enduring powers of attorney is and
• 12:12
  Speaker 1: the issues around that?
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  Speaker 2: There were, There will be a time in most people's
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  Speaker 2: lives when they don't have capacity. And therefore, the enduring
• 12:22
  Speaker 2: power of attorney exists long as they are alive. Many
• 12:27
  Speaker 2: people think it survives the deceased, and it doesn't. Many
• 12:31
  Speaker 2: widows have rushed down to the bank with the document
• 12:34
  Speaker 2: to be told it doesn't work anymore. But I stress
• 12:38
  Speaker 2: in the book, you need to rehearse it. Now, a
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  Speaker 2: case recently I heard about, a woman was a widow.
• 12:45
  Speaker 2: Two kids had the endearing powers of attorney. They go
• 12:48
  Speaker 2: to the bank to withdraw $ 500, 000 for the bond. Bank
• 12:53
  Speaker 2: says a power of attorney is not valid because the
• 12:57
  Speaker 2: kids signed before the widow and the document is giving power.
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  Speaker 2: So those who accept the power can't sign before the giver.
• 13:09
  Speaker 2: The lawyer said simply sold. We'll get the attorneys to re-sign.
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  Speaker 2: The bank says, I know, I'd accept that. And they
• 13:20
  Speaker 2: have to go to the court. Because banks can be
• 13:22
  Speaker 2: very difficult, extremely difficult.
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  Speaker 1: Just to backtrack for a second. So during powers of attorney,
• 13:27
  Speaker 1: this is a situation where, for instance, I have a
• 13:31
  Speaker 1: very old parent. And that very old parent, or I
• 13:35
  Speaker 1: or anyone like me, has a very old parent. And
• 13:38
  Speaker 1: we know that parent is fine, but we also know
• 13:42
  Speaker 1: that in whatever situation, In the three or four years' time,
• 13:45
  Speaker 1: the statistics would suggest that they're going to find it
• 13:50
  Speaker 1: too hard to pay their bills, to manage things, sign documents.
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  Speaker 1: So as a preemptive measure, as a defense for them,
• 14:00
  Speaker 1: to help them and to help the family have all
• 14:03
  Speaker 1: this done properly, the person suggests, hey, dad or hey, mom,
• 14:07
  Speaker 1: there's a thing called enduring power of attorney. And if
• 14:10
  Speaker 1: you sign it, it means that I'll be able to
• 14:12
  Speaker 1: manage your affairs for you on your behalf should you
• 14:16
  Speaker 1: lose capacity. Now, that's the enduring property. But how often
• 14:22
  Speaker 1: do you think they work? And how often do you
• 14:25
  Speaker 1: think the older person resists?
• 14:29
  Speaker 2: Well, I think the older person is usually amenable to it.
• 14:33
  Speaker 2: The trouble is when you try to use it. If
• 14:37
  Speaker 2: the bank doesn't accept it, or worse still, if you
• 14:39
  Speaker 2: can't find it. I heard about a guy, he did
• 14:42
  Speaker 2: the will, the power of attorney, and the advanced health directive,
• 14:46
  Speaker 2: and put them all in the safe. And the kids
• 14:50
  Speaker 2: needed the court order to get them. So those documents
• 14:54
  Speaker 2: need to be available.
• 14:56
  Speaker 1: Okay, so what's the perfect way to do it?
• 15:00
  Speaker 2: Well, you need the documents, and your family should know
• 15:03
  Speaker 2: about them. One of the things we cover in the
• 15:05
  Speaker 2: book is a lot of people now prepay their funerals
• 15:10
  Speaker 2: because you can pay $ 15, 500 and be exempt from settling.
• 15:15
  Speaker 2: It's a good age pension strategy. But it's too late
• 15:21
  Speaker 2: when you're all in church to find out that you
• 15:24
  Speaker 2: prepaid a different funeral director. But very important that kids
• 15:29
  Speaker 2: know if it's a prepaid funeral, who's got it? I
• 15:34
  Speaker 2: hear time and time again, oh, we went through mum's
• 15:37
  Speaker 2: stuff and all the things we found, you couldn't believe it.
• 15:41
  Speaker 2: One person said all the books were full of banknotes. Yes.
• 15:48
  Speaker 1: Well, at least with banknotes, you don't have to seek
• 15:51
  Speaker 1: anyone's advice about how to access them. Okay, we'll take
• 15:54
  Speaker 1: a short break and we'll be back in a moment.
• 16:05
  Speaker 1: Hello and welcome back to the Australian's Money Puzzle podcast.
• 16:08
  Speaker 1: James Kirby here talking to Noel Whittaker, the author and
• 16:12
  Speaker 1: finance commentator, the original of the species, folks. Long before
• 16:16
  Speaker 1: many of us, including myself, were on the scene, Noel
• 16:20
  Speaker 1: really was a guiding light on how to do this
• 16:23
  Speaker 1: and how to talk to the general public about specific
• 16:26
  Speaker 1: financial issues. And you must remember, today we've got podcasts
• 16:30
  Speaker 1: and A lot of coverage in newspapers, et cetera. But
• 16:33
  Speaker 1: there was a time when there was very little. You
• 16:36
  Speaker 1: had to be quite wealthy to get advice. You had
• 16:38
  Speaker 1: to be quite wealthy to even use a stockbroker. And
• 16:41
  Speaker 1: people like Noel really broke the mold in this area. Noel,
• 16:44
  Speaker 1: one of the things you mentioned about in terms of,
• 16:47
  Speaker 1: and it's hard to, there's only so much we can
• 16:48
  Speaker 1: cover today. But in the past, wills were everything, right?
• 16:52
  Speaker 1: The will was the big thing. Yes. Now, enormous amounts
• 16:55
  Speaker 1: of money are now in super. And with compulsory super,
• 16:59
  Speaker 1: there's a whole generation coming through where outside of the
• 17:03
  Speaker 1: family home, most of the money might be in super.
• 17:06
  Speaker 1: There mightn't be anything really we're talking about outside of super.
• 17:09
  Speaker 1: If they put all their money in super and then
• 17:12
  Speaker 1: after they pass on, it's all about how the super
• 17:18
  Speaker 1: is passed on. Can you give some information about how
• 17:21
  Speaker 1: that should be done properly?
• 17:23
  Speaker 2: Well, the first big issue, James, is Your will does
• 17:27
  Speaker 2: not determine who gets your super. The trustee of your
• 17:32
  Speaker 2: fund is the person who decides who gets the super. Now,
• 17:36
  Speaker 2: you can do a binding death benefit nomination that tells
• 17:40
  Speaker 2: the trustee what they've got to do. But I think
• 17:43
  Speaker 2: the big danger is the death tax. Now, most people
• 17:45
  Speaker 2: don't understand the death tax. Now, your super has a
• 17:49
  Speaker 2: taxable component that's contributions and earnings, and the only tax
• 17:55
  Speaker 2: The exempt component is stuff you've made from your own
• 17:57
  Speaker 2: after-tax dollars. Now, that's fine if left to a dependent,
• 18:03
  Speaker 2: and your partner's always dependent, but if that's left to
• 18:06
  Speaker 2: a non-dependent, there's a 17% tax on death.
• 18:11
  Speaker 1: So just for the listeners, just to clarify on this one,
• 18:15
  Speaker 1: people nowadays, the amount we're paying in compulsory super, for
• 18:19
  Speaker 1: most people, it's so much that it's all they put in, right?
• 18:23
  Speaker 1: They don't volunteer or anything else.
• 18:24
  Speaker 2: Sure.
• 18:25
  Speaker 1: So what you're saying is, let's say for the average
• 18:28
  Speaker 1: Australian in 20 years' time, their super will be made
• 18:32
  Speaker 1: up probably, I don't know, 80% or 90% will be
• 18:35
  Speaker 1: compulsory super that was put in by law. And that money,
• 18:41
  Speaker 1: should they seek in the future to pass that on
• 18:44
  Speaker 1: to what we call an adult dependent, there's a tax
• 18:48
  Speaker 1: on that. It's 17%. Is that what it works out
• 18:50
  Speaker 1: at now, thereabouts?
• 18:52
  Speaker 2: It's non-dependent. Medicare will be at 2% plus 15%. I
• 18:57
  Speaker 2: could just say one thing there. Their balance will be
• 19:01
  Speaker 2: probably 30% contributions and 70% earnings. Because as the balance grows,
• 19:08
  Speaker 2: the contributions form a smaller component. But that's all taxable.
• 19:13
  Speaker 1: Yes. Okay. Fair enough. So it's the contributions. It's that pillar,
• 19:18
  Speaker 1: if you like, the core of the contributions that we're
• 19:20
  Speaker 1: talking about here.
• 19:21
  Speaker 2: And the earnings. Yes.
• 19:22
  Speaker 1: And the earnings on them, which is the vast bulk
• 19:24
  Speaker 1: of the money, I suppose, is it?
• 19:26
  Speaker 2: Sure. So if you've got a half million in super,
• 19:28
  Speaker 2: there's $ 85, 000 potential death tax on that. Now, there's ways
• 19:34
  Speaker 2: around it.
• 19:35
  Speaker 1: There is ways around it. And they're completely, they are
• 19:39
  Speaker 1: almost daft, I think, in such a sort of a
• 19:43
  Speaker 1: circular thing. But basically what you do is you take
• 19:46
  Speaker 1: the super out and you re-contribute it. Is that right?
• 19:49
  Speaker 2: Yes, but yes, true. So once you reach 60, you
• 19:53
  Speaker 2: can take your super out tax-free and you contribute to
• 19:56
  Speaker 2: age 75. So you could take, if your balance is
• 20:00
  Speaker 2: half a million dollars, you could take out $ 300, 000 now
• 20:02
  Speaker 2: and put it back. But don't forget the earnings are
• 20:06
  Speaker 2: still taxable on that. And you can't specify which parts
• 20:10
  Speaker 2: you withdraw. So if I've got, say, 80% taxable and 20% non-taxable,
• 20:18
  Speaker 2: then the withdrawals will be in those proportions. The best
• 20:22
  Speaker 2: solution is to have your attorney instructed to withdraw the
• 20:27
  Speaker 2: money when your death is near, tax-free, and put that
• 20:30
  Speaker 2: in your bank account. Yes.
• 20:33
  Speaker 1: Do many people do that, Noel?
• 20:34
  Speaker 2: A woman wrote to me this week. Sorry, her daughter
• 20:37
  Speaker 2: ran Dad died and the instructions were to go straight
• 20:43
  Speaker 2: to mum. Mum died three days later. Now, Australian super
• 20:49
  Speaker 2: were not prepared to pay the benefit to a dead person.
• 20:54
  Speaker 2: So the whole estate copped the 17% because mum died
• 20:58
  Speaker 2: so fast that there was no time. Don't forget, if
• 21:02
  Speaker 2: you're dealing with big funds, it could take six months
• 21:04
  Speaker 2: to get the money out.
• 21:06
  Speaker 1: Is that right? I know they're notorious. for their delays
• 21:10
  Speaker 1: and how slow, and it's probably one of the selling advantages,
• 21:15
  Speaker 1: underestimated advantages of self-managed super funds. Absolutely. You don't have
• 21:20
  Speaker 1: to deal with all that. But just one last thing
• 21:23
  Speaker 1: on that. I know in principle it sounds terrific, but
• 21:28
  Speaker 1: how often can a family member in good faith persuade
• 21:34
  Speaker 1: someone who's literally close to death To gift all their money.
• 21:40
  Speaker 1: I mean, it would be a diplomatic... No, it's going
• 21:44
  Speaker 1: to the member's bank account.
• 21:47
  Speaker 2: So I've got a million dollars in SIPA, so the
• 21:49
  Speaker 2: attorney takes out my million tax-free and puts a million
• 21:52
  Speaker 2: dollars in my bank account, and then the will takes over.
• 21:57
  Speaker 1: Yes, yes. Okay, I get it. But still, do you
• 22:02
  Speaker 1: think it's common that people actually go through that process?
• 22:06
  Speaker 2: Well, they don't get around to doing it. That's the
• 22:09
  Speaker 2: whole problem. And then, of course, when the guy's close
• 22:13
  Speaker 2: to death, they're so traumatized about his uncoming death, they
• 22:17
  Speaker 2: still don't do it.
• 22:18
  Speaker 1: Of course, that's right. It's very hard to talk about
• 22:20
  Speaker 1: things like that at that time. Of course. Okay, one
• 22:23
  Speaker 1: last thing. One last thing before we go to questions,
• 22:26
  Speaker 1: and we're trying to squeeze in a lot here, but
• 22:28
  Speaker 1: about executors. I know there's various points you want to make,
• 22:32
  Speaker 1: but I want to say one thing. To our listeners,
• 22:35
  Speaker 1: if someone asks them, would they be the executor on
• 22:39
  Speaker 1: their will? I have heard absolute horror stories of people
• 22:46
  Speaker 1: who very casually said, of course, and ended up being
• 22:50
  Speaker 1: the executor on two or three different wills and found
• 22:53
  Speaker 1: themselves in the middle of ferociously feuding families. Is there
• 22:58
  Speaker 1: any advice you give to people about the whole business
• 23:02
  Speaker 1: of being an executor?
• 23:04
  Speaker 2: Well, I think the executor stands in the place of
• 23:07
  Speaker 2: the deceased. And I think if you're making a will,
• 23:10
  Speaker 2: you've got to make sure the executor is a person
• 23:14
  Speaker 2: who can do that. Now, that's pretty okay if you've
• 23:17
  Speaker 2: only got a house and super, but if you've got, say,
• 23:19
  Speaker 2: maybe rental properties and commercial property and stuff, there's big
• 23:23
  Speaker 2: decisions to make. In the book, we talk about the
• 23:27
  Speaker 2: case for kids and two want to keep the family
• 23:30
  Speaker 2: home and two don't. One's saying, mum's promised we could
• 23:34
  Speaker 2: mortgage the house for my business. The other says, no.
• 23:38
  Speaker 2: And then the executor's got to adjudicate. You know, I'd
• 23:42
  Speaker 2: be very loathe to accept anything as an executor.
• 23:45
  Speaker 1: You'd be very loathe to accept the task in itself
• 23:49
  Speaker 1: of being an executor.
• 23:51
  Speaker 2: Either.
• 23:52
  Speaker 1: Do you think the person should be a lawyer?
• 23:55
  Speaker 2: Well, there's lawyers who will do it for a fee.
• 23:57
  Speaker 2: But in my own case... I found that old will
• 24:00
  Speaker 2: I'd made 15 years ago was I reviewing the current will.
• 24:04
  Speaker 2: And the people I'd chosen as executives, I would never
• 24:06
  Speaker 2: pick now. Well, one turned out to be a dreadful
• 24:11
  Speaker 2: stock picker. One is now too old and one's deceased.
• 24:18
  Speaker 2: That's why in keeping the will up to date is important.
• 24:21
  Speaker 2: But I also like to say we stress, don't rush.
• 24:25
  Speaker 2: I hear time and time again, dad died, we rushed
• 24:28
  Speaker 2: and told the bank. They froze the accounts and we
• 24:31
  Speaker 2: couldn't pay for the funeral. Right. You don't need to
• 24:34
  Speaker 2: rush and tell the bank.
• 24:35
  Speaker 1: Is there a legal requirement about how long you can?
• 24:40
  Speaker 2: Not that much, but the other big one is most
• 24:43
  Speaker 2: couples exist on the husband's superannuation pension. Now, he dies,
• 24:53
  Speaker 2: they rush and tell the fund freezes the pension. It
• 24:56
  Speaker 2: can take a year to revive it. And that's a
• 25:00
  Speaker 2: major problem. And also a big issue is most people
• 25:03
  Speaker 2: on the age pension leave their assets to each other. Now,
• 25:08
  Speaker 2: the couple's cutoff point's about a million and the single
• 25:12
  Speaker 2: cutoff point's about $ 680, 000. So if you've got $ 800, 000 of
• 25:18
  Speaker 2: assets and you're getting a part pension and all the benefits,
• 25:22
  Speaker 2: then the husband dies and the widow gets all the money,
• 25:27
  Speaker 2: she's over the limit and she loses the pension. All
• 25:30
  Speaker 2: these things are so important, and they're all talking about
• 25:33
  Speaker 2: big dollars. I mean, these mistakes cost a lot of money.
• 25:37
  Speaker 1: Yes. But what could the person, one last thing before
• 25:40
  Speaker 1: we go to the big, what could the person do?
• 25:41
  Speaker 1: I mean, in a way, there's a justification to that.
• 25:43
  Speaker 1: They've just picked up a whole pile of money. You
• 25:46
  Speaker 1: don't need a pension as much as they used to.
• 25:48
  Speaker 2: Well, yes, but as much simpler, I always believe the same,
• 25:52
  Speaker 2: just saying that you give with a warm hand. When
• 25:56
  Speaker 2: Bill and Mary are doing their will, they can decide
• 25:58
  Speaker 2: which kids to leave the money to. And they could
• 26:02
  Speaker 2: leave $ 300, 000 to the kids and mum would still have
• 26:05
  Speaker 2: $ 600, 000 and still get the pension.
• 26:08
  Speaker 1: Okay. Just a basic, clever, cool, calm assessment of the numbers.
• 26:14
  Speaker 1: Very good. Okay. Hey, we'll go to questions. We'll take
• 26:16
  Speaker 1: a short break and we'll come back and try and
• 26:18
  Speaker 1: get notes to two or three questions from our listeners.
• 26:22
  Speaker 1: Back in a moment. Hello, welcome back to the Australian's
• 26:29
  Speaker 1: Money Puzzle. I'm James Kirby talking to Noel Fuetiker. Okay, Noel,
• 26:33
  Speaker 1: we'll just try two or three of these. David says,
• 26:37
  Speaker 1: I'm moving my super from a wrap account to an
• 26:40
  Speaker 1: industry fund. I want to ensure that when my accumulation
• 26:44
  Speaker 1: phase super changes to account-based pension within the same provider,
• 26:48
  Speaker 1: it doesn't trigger a CGT event. However, reading all the documents,
• 26:53
  Speaker 1: I can't see a clear answer to the question. People
• 26:56
  Speaker 1: are always worried about that, moving money and losing the
• 27:00
  Speaker 1: CGT or having to pay tax in some fashion.
• 27:03
  Speaker 2: It's the main point, James. Is there insurance with his
• 27:07
  Speaker 2: present fund? If there is, will the new fund accept
• 27:12
  Speaker 2: the insurance? Because you can't transfer it.
• 27:15
  Speaker 1: You can transfer your money, but you can't transfer your insurance.
• 27:19
  Speaker 2: One of the lawyers was telling me that they're acting
• 27:23
  Speaker 2: for a person. He had five super funds, wife amalgamated
• 27:30
  Speaker 2: them to save fees because he had cancer, was dying,
• 27:36
  Speaker 2: and she closed the one fund that had.
• 27:39
  Speaker 1: A $ 400, 000.
• 27:40
  Speaker 2: Insurance in it. So they lost $ 400, 000 death benefits by
• 27:45
  Speaker 2: moving funds. So the first thing is, if I'm moving funds,
• 27:49
  Speaker 2: is insurance an issue?
• 27:51
  Speaker 1: Because if you move the fund... and the CGT is clean,
• 27:57
  Speaker 1: I presume. That's not an issue in this case.
• 28:01
  Speaker 2: I can't see there's any issue with capital.
• 28:02
  Speaker 1: Yeah, I wouldn't have thought so. By the way, David,
• 28:04
  Speaker 1: and all the Davids out there, this is never advice.
• 28:06
  Speaker 1: This is information only. But here's the point that Noel
• 28:09
  Speaker 1: is making. If you're choosing between insurer superfunds, Be very
• 28:15
  Speaker 1: careful on the insurance because the insurance doesn't transfer with you.
• 28:19
  Speaker 1: And when you go to the new fund, they're going
• 28:21
  Speaker 1: to make you take all the medical tests again and
• 28:23
  Speaker 1: fill out all the forms again. And the chances are
• 28:25
  Speaker 1: you're probably not as healthy as you were when you
• 28:28
  Speaker 1: signed it the first time. And so your insurance will
• 28:30
  Speaker 1: go up. Would that be the issue?
• 28:32
  Speaker 2: No? Spot on.
• 28:34
  Speaker 1: Yeah.
• 28:34
  Speaker 2: Yeah.
• 28:35
  Speaker 1: Okay. All right. So keep that in mind, David. All right, Tina.
• 28:38
  Speaker 1: Try and edit Tina a little. Tina, my husband and
• 28:41
  Speaker 1: I have a self-managed super fund. Unlike the recommendation of
• 28:44
  Speaker 1: one of your recent guests, we certainly didn't have a
• 28:47
  Speaker 1: million in super fund. We set it up. Quick question, Noel.
• 28:51
  Speaker 1: How much do you think someone should have to set
• 28:52
  Speaker 1: up a self-managed super fund?
• 28:55
  Speaker 2: Well, they normally say at least $ 300, 000 or $ 400, 000. But
• 28:58
  Speaker 2: the main issue is, why do you want a self-managed fund?
• 29:03
  Speaker 2: I've got one. They're great for business premises. Perfect. They're
• 29:09
  Speaker 2: very good if you've got... I've got money in property syndicates.
• 29:14
  Speaker 2: You'd need a self-managed fund for that. That's the main thing,
• 29:18
  Speaker 2: I think. What often happens is that the market crashes,
• 29:25
  Speaker 2: your superannuation goes down, no matter who it's with. Oh,
• 29:29
  Speaker 2: I'll do better myself, and they set up a self-managed
• 29:31
  Speaker 2: superannuation fund. Of course, more and more, too, it's normally
• 29:37
  Speaker 2: the bloke runs the fund, and then he gets dementia,
• 29:41
  Speaker 2: and the wife doesn't want it. I think they're great
• 29:45
  Speaker 2: in the right circumstances. As we were saying before, if
• 29:49
  Speaker 2: you're taking out money fast, it's going to be much
• 29:52
  Speaker 2: quicker in the self-managed fund.
• 29:55
  Speaker 1: So, now, what about investment opportunities? I don't mean business property,
• 30:00
  Speaker 1: because you mentioned the advantages of business property. Of course,
• 30:02
  Speaker 1: if you put your business in an SMSF, it's the
• 30:05
  Speaker 1: great thing. But what about residential investment property inside self-managed
• 30:09
  Speaker 1: super funds? What do you think of that?
• 30:12
  Speaker 2: Well, as you know, I don't like residential real estate.
• 30:16
  Speaker 1: In the first place?
• 30:17
  Speaker 2: Yes.
• 30:18
  Speaker 1: So you're unlikely to like it in a super fund.
• 30:20
  Speaker 2: Yes, but the whole thing is this. You make your
• 30:22
  Speaker 2: property by gearing. I'd rather buy... borrow 100% of the
• 30:28
  Speaker 2: purchase price of the property fully geared in my own name,
• 30:33
  Speaker 2: which you don't get that concession in a super fund.
• 30:35
  Speaker 2: It's a much lower rate of tax. Then if I've
• 30:38
  Speaker 2: got to sell the property, sell it when I'm old
• 30:40
  Speaker 2: and I don't earn any money, I'll be in a
• 30:42
  Speaker 2: much lower tax bracket. I'd rather keep your real estate
• 30:46
  Speaker 2: out of your super. It's much simpler.
• 30:48
  Speaker 1: And the point you're making is that you pay high
• 30:52
  Speaker 1: tax as an individual and And the negative gearing is
• 30:56
  Speaker 1: considerable because the tax is high. In the super fund,
• 30:59
  Speaker 1: the tax is low. So the negative gearing isn't as good.
• 31:03
  Speaker 1: I suppose that's it. All right.
• 31:04
  Speaker 2: Sure. But also, there's some con men out there, the
• 31:08
  Speaker 2: property spruikers, who will contact you and say, we will
• 31:12
  Speaker 2: start your self-managed super fund, access to super, and we
• 31:16
  Speaker 2: will build you a property. And that's a recipe for disaster,
• 31:21
  Speaker 2: believe me.
• 31:22
  Speaker 1: I don't disagree with you for one moment.
• 31:25
  Speaker 2: Sure.
• 31:26
  Speaker 1: Folks, you will never hear them on this show. I'll
• 31:28
  Speaker 1: tell you that much. We will not have them on.
• 31:30
  Speaker 1: And if I sniff anyone trying that, I will protect
• 31:34
  Speaker 1: our listeners on that one.
• 31:36
  Speaker 2: Okay.
• 31:36
  Speaker 1: I think we will leave it at that for today, Noel.
• 31:38
  Speaker 1: It was great to talk to you. The name of
• 31:42
  Speaker 1: the latest book from Noel is, why don't you tell
• 31:45
  Speaker 1: us what it is again once more?
• 31:47
  Speaker 2: Will's Death in Texas. Made simple.
• 31:50
  Speaker 1: Well, we'll have you on again. It's been great to
• 31:53
  Speaker 1: have you on today. So thank you very much.
• 31:55
  Speaker 2: It's a pleasure. Thank you.
• 31:57
  Speaker 1: And thank you for listening, everybody. Keep those emails coming.
• 32:01
  Speaker 1: I have some capacity now to pick up some questions.
• 32:03
  Speaker 1: So let's have them. The moneypuzzle at theaustralian.com.au. Producer today
• 32:10
  Speaker 1: was Leah Samoglu, who has done a great job both
• 32:15
  Speaker 1: today and over the period when I was away. And
• 32:18
  Speaker 1: I want to thank her for that on air. OK,
• 32:20
  Speaker 1: talk to you soon. Thank you.