Ask Noel: Best way to keep assets in the family

In recent articles you have mentioned the strategy of a couple leaving assets to children, instead of to each other, so as to maintain a part age pension. This poses a greater risk of losing those assets if the children get divorced or split with their partner. Is there a legal way to ensure the assets remain with the children, so assets bequeathed to them by their parents would not be lost in the event of a relationship breakdown?

You make a good point but there are many potential issues besides a relationship breakdown.

For example, one child could be in business and facing bankruptcy, in which case the legacy could go to the creditors. Another might be a gambler and we can guess what would happen to that money, and the third might be a high income earner, in which case the legacy could give them an unwanted tax burden.

One solution is to leave the bequest to a testamentary trust – in this case the money would not be left directly to the child but to a trust that would be administered by a trustee for the benefit of the child.

This should solve all the problems mentioned above, but it’s important that the will be drawn up properly.

Input from an estate planning lawyer is essential.

Can you advise if the balance in my super fund, from which I drawn down annually as required, constitutes an asset when Centrelink assesses eligibility for the age pension?

The details you have provided are sparse, but if you are required to make a minimum withdrawal each year, your fund must be in pension mode. If it is, irrespective of your age, it will be an assessable asset for Centrelink purposes. Once if you have reached pensionable age all superannuation is assessed.

If you have not yet reached pensionable age you could remove your superannuation from being assessed by Centrelink if you switched it back to accumulation mode. You really need to be taking good advice.

Is the 15 per cent tax I pay tax when making contributions into a pension fund claimable in a personal tax return?

Keep in mind, that you cannot make contributions to a fund in pension mode – it would need to be a separate accumulation account.

The 15 per cent entry tax cannot be claimed as a tax deduction because a concessional contribution is treated as taxable income of the super fund and is caught up in the 15 per cent tax on income paid by the fund. In other words it is an expense to the fund, not the contributor.

Can I move my $50,000 in super to a managed fund and start salary sacrificing to that fund?

Unless you have reached an age where you can access your superannuation you cannot withdraw the money and invest it in a managed fund.

However, you can switch the money presently held in superannuation to a growth option within your existing fund, if the fund has such an option, or you could roll the money from your present fund to a new fund that has the bells and whistles you are looking for. You can only salary sacrifice to superannuation.

My wife and I are both 40 with two young children. I earn $280,000 a year and my wife cares for our children full time. We have a $330,000 mortgage on our home, with $175,000 in an offset account. We also have a $440,000 mortgage on an investment property in my name, which returns weekly rent of $600 and is cash flow positive after tax. I sacrifice the maximum into my super and our combined balance is $400,000. We also hold $11,000 in high interest accounts for our children, and contribute $400 a month to the accounts. We want to invest for our children’s high school education and our retirement. Is a child endowment insurance bond worthwhile for the children’s education, or is borrowing to invest in shares better to help our retirement plans? I’d like to retire at 60.

One of the best ways to invest for your children’s education is to make sure your mortgage is paid off by the time they get to the expensive years – you seem to be on track to do this now. I do like insurance bonds for putting aside money for children’s education but you need to seek advice to ensure the bond you choose suits your goals and your risk profile. Borrowing for shares can be a very good strategy but I suggest you use managed funds to give yourself diversification, and make sure you stay within your comfort level.

  • Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance.