Alan, you say that rest home fees are not enough to justify the forming a trust. What are good reasons for forming a trust?
The real purpose of a trust is to protect assets for future generation – e.g. a farm, business, property, valuable beach house etc.
Trusts are not so great for protection against taxes or rest home fees, since future governments can change the rules at the stroke of a pen – they already have with rest home fees and taxes. One good reason to form a trust is to protect funds for a mentally ill or disabled child. Another would be if you had a farm, property, or business worth millions. In most other cases you should have 3 good reasons to form a trust, as they cost $3,000+ to set up, add complexity to your life, and also have on-going costs. Reasons might be;
- Protection against the re-introduction of estate (death) duties.
- Protection of your assets against unreasonable creditors or law suits.
- Preventing wayward children from wasting their inheritances.
- Protection of your children’s inheritances if their marriage fails.
- Protection of your assets before a 2nd or 3rd or 4th marriage.
- Timing of the distribution of your estate to your children after your death.
- Succession planning – keeping a farm or business in the family.
- Continued ownership of "core" family assets.
- Protection from will disputes.
Weaker and probably not good enough reasons
- Minimising taxation.
- Possible access to government subsidies if and when you need extensive care.
- Protection from increased asset or means testing in the future.
I have seen people pay $3,000 to set up a trust just for rest home fees, and then Helen Clark changed the rules in their favour, so the $3,000 was simply wasted. Yes, Helen did do the odd good thing.
Question Two: Older people often get new cars because they are not asset tested under the social security act when the move into residential care. Is this a good idea?
Don’t forget WINZ are not stupid and have seen it all before. This might make sense if one person is in a home and their spouse is still in the family home. WINZ rules allow:
- A funeral plan for $10,000
- Small gifts to children, grandchildren or caregivers
- Upgrade of the car
- Upgrade of white ware, such as washing machines and fridges
- Paint the house (only if it needs it)
- Maybe a new carpet or TV to cheer up the spouse at home
But it would be smart to only do this within reason because just "getting rid of money" is never a good idea. If the spouse at home is healthy or younger, he/she might live another 5, 10, or 20 years, and so still need quite a bit of money. There is nothing like having cash reserves in hand as you get older.
Art, books, stamps and antiques are also excluded from any assessment. Is this a good idea?
Only if you are rich, know what to buy and still have plenty of liquid cash reserves as well.
Question Four: Alan you say that a balanced portfolio is likely to return 3% more than the bank in the medium to long term. How can older people develop a portfolio that is right for them?
A diversified balanced portfolio of bonds, property, and shares (in high quality funds) over time is likely to average 2% to 3% more than a bank deposit.
$200,000 x 2.5% more = $5,000 pa. more than a bank
$5,000 pa. x 20 years = $100,000 more than a bank
This portfolio would have wide diversification on and offshore, and be totally liquid too, so they have access to money at all times.
To build such a portfolio, you need some expertise so getting financial advice is a good idea. I have published a list of "how to choose an adviser" which won’t fit here but readers are welcome to email me and ask for it – or read my book.
Question Five: You state "cash flow is king" retired or not. Some people near or over 65 have cash, investment properties and shares, but are not sure if it is enough. What should they do?
An annual review of your finances is a very good idea, young or old. An independent person can often see things you can’t, and can help you work out your concerns, problems and cashflow. For older people, most experienced advisers can help them work out all these things, and how long their money will last too – this can be very useful.
Question Six: Do you have any tips for older people who want to assist their families financially whilst they are alive?
Adult children usually have 20 to 30 years of working and earning life in front of them, whereas the parents are often retired and not earning.
Hence older people need to be very cautious and circumspect before handing out any significant sums of money. Again advice can often help – I have told many clients they can give away more, and other told many others that they cannot afford to give away any.They often find it easier to blame their "mean financial adviser" when saying no.
Question Seven: This election, what do you want from the political parties relating to work, money & retirement?
Workers and savers need their Kiwisaver investment earnings to be tax free so they can really grow – many other countries offer such incentives to savers. I would also like to see a substantial government sponsored reverse mortgage scheme, so retired people can raise cash against their homes, but with the assurance of government backing. BUT I would prefer to see children "pay" their elderly mum and dad a monthly amount to "buy" their house and everyone wins. Mum and dad get the extra cash flow they need, and the children protect their inheritance (how to structure this in my book).
Money and saving is not hard, it just needs planning and action.
The Great NZ Work, Money & Retirement Puzzle by Alan Clarke
Most Kiwis spend far more time planning their annual holiday than their retirement. Although the majority of us are in KiwiSaver, calculations show that for many people, especially those over 50, it will not be anywhere enough for retirement. Most of us need to find a balance between living for today and saving for tomorrow. This practical and insightful guide for Kiwis of all ages, will show you how to get your money under control, once and for all. It includes:
Costly mistakes that too many Kiwis make;
How to reduce mortgage costs, and manage debt;
Wills, trusts, money, and family harmony – oh so tricky;
How to get to retirement, and enjoy it;
Age 50 to 60 – critical pre-retirement stuff you need to know;
Over 60 – the big decision of when to stop work;
Over 70 – making your money last as long as you do;
Retirement villages and other often unseen traps.
Author Alan Clarke’s second book is based on 25 years experience.
He reveals why some people thrive, and too many others barely survive.
And how to avoid those bad decisions that can destroy your finances.
Alan Clarke was born in Timaru and brought up on a farm in South Canterbury. He gained his commercial pilots licence at age 19 and then flew full time for 20 years in NZ, Africa, England and the USA (14 years offshore).His flying career included flight instruction, charter flying, topdressing, crop spraying, and oil rig servicing. Alan quit flying at age 40 by which time he had amassed close to 11,000 hours in aeroplanes and helicopters. On a brief return trip to New Zealand in 1977, Alan met and married Donna. They then proceeded overseas again and returned permanently to New Zealand in 1984. They now have four children aged 33 down to 21, and twin granddaughters. In 1987 Alan made a major career change into finance and has been a financial adviser for 25 years.He has first hand experience of what works for some people and why others get it so wrong. After a period working with others, Alan & Donna established their own financial planning business in 1996. After many years involvement with active investment managers, and a lot of disappointment, Alan went looking for a better way to invest. After many years of research, Alan and Donna discovered what they believe to be a superior investment method – asset class investing.
In 2005 Alan took up flying again (this time for fun) and is now the NZ agent for Pipistrel motor gliders. Donna & Alan enjoy travel, flying, gliding, tripping around NZ, boating, camping and just "being outside." Alan is an AFA (authorised financial adviser) and in 2011 wrote his first book "Retire Richer". In 2014 he wrote his 2nd book "The Great NZ Work, Money, & Retirement Puzzle" Both books are all about "how to get to retirement, and be retired, without making a hash of it" and are practical guides for everyone aged 19 to 91. Alan writes regular articles for various publications, and also posts them on his website. For more information go to:
To go into the draw to win a copy of this book CLICK HERE
Draw closes 23rd September 2014. Open to NZ residents only.