accountant services

Are your children going to be surprised after your passing by what they do or do not inherit? Perhaps it time to sit down & have an honest discussion about the terms of your will.

This issue comes to light on the heels of a case that was tried in court last fall. The case involved a deceased man whose daughters were not notified of his death nor did they inherit any part of his estate per his will. There was only a public notification to creditors of which there were none that came forth. The daughters tried to make a claim two years after their father died but the courts denied the motion. They were left with nothing just as the father had wished.

This ruling is in direct opposition to historic cases where the courts were more sympathetic for the cause of the surviving children. Clearly there is no law stating that parents must leave an inheritance to their children. Luckily there were no creditors to lay claim to the estate & the man’s surviving partner received the inheritance.

How This Affects the Property Investor

In the previously mentioned case the father drew up a will that designated the public trust as executors. For the investor this is not a good plan.

It is advisable instead to place assets in a company trust not one under your personal name. This type of legal structure protects any assets including real estate from creditors the Official Assignee & duties paid on gifts. This also allows the trust to be passed directly into another trust specifically established for surviving children upon the parent’s death.

Another good idea is to draw up a Memorandum of Wishes & ensure that it kept updated. This will inform the trustees of exactly how your assets should be handled after your death. Along with the Memorandum of Wishes a will should also be filed. Your will designates the disposition of personal assets outside the company trust.

Why go to all this trouble? For one thing family relationships tend to change over time. Not all family members get along with each other throughout their lives. Having the proper legal documents in place before you die means that your assets will go where you want them to go & be safe from claim. It also relieves any possible family disputes over an inheritance someone feels entitled to.

As a property investor it important to think of all possible scenarios when planning an investment strategy. Take care of the necessary paperwork now before it too late. This is an action you won’t regret.

Paul Easton works in marketing for Mathew Gilligan an accountant & partner at Gilligan Rowe & Associates Ltd GRA . GRA is Chartered accountant firm specialising in property in New Zealand. Search Engine Optimisation by Digitalawol.com

An important consideration as you expand your real estate portfolio for investment purposes is reducing the risk of losing assets in the case of insolvency due to bank securities. How you structure your business & its financing will largely determine how safe you are from possibility of losing the property & its accrued equity.

First we present a bit of background.

Banks & Gearing Rules

Simply put gearing rules dictate financing structure. The general rule of thumb is that a 20% depos it required to purchase residential property whilst 33% is preferred for commercial or larger properties. New Zealand also requires an interest cover rate of 2.5 to 3% which is determined by the formula of rent + income / interest expense.

It is important to figure these percentages in the equation when considering the viability of a real estate purchase. Do you have the necessary cash flow to seal the deal?

Financing Strategy

One way to minimise risk of losing assets & equity is to finance with a split loan structure. This refers to using two lending institutions.

With the first bank finance a property investment using the real estate & a personal guarantee as security. With the second bank put down a deposit using family trust assets. As soon as it viable refinance the loan with the second bank based on revaluation of the property as the sole means to secure it. In this way you eliminate any guarantees that could result in loss of the real estate & other assets.

Of course this type of financing relies on the set up of a family trust. Do this now & also institute a gifting programme for allotment. In the above scenario you will need to refrain from giving the second bank security over the trust. Realise that this will probably be an automatic term of the loan but it can be denied. Without a trust in place the personal guarantee you give to the first bank in the above example places the property at risk.

In order to receive the most favourable terms at the bank consider using a broker to do the negotiating for you. This allows you the strongest position from which you can stand firm & ensure that the security requirement does not eventually cause the loss of property. The trust must not be put at risk nor should other assets.

Paul Easton works in marketing for Mathew Gilligan an accountant & partner at Gilligan Rowe & Associates Ltd GRA . GRA is Chartered accountant firm specialising in property in New Zealand. Search Engine Optimisation by Digitalawol.com