Episode 41 “Your Questions Answered”

Transcript:

Welcome to 3 Minute Tech.

These are the videos where we answer your technical financial planning questions without all of that jargon.

Shot on location at our beautiful new offices, Level 37 QV1.

So today’s topic will be answering your questions.

Now you’ve sent in some fantastic questions for us to cover today and really interesting and diverse topics. So let’s get into it.

Now the first question we have today is from Ruth.

Ruth says, following the loss of a spouse, it seems like there’s a never-ending amount of things in their personal finances that need to get done.

Do we have any advice?

Well firstly Ruth, I’m so sorry for your loss.

Thank you for your question and you raise some really important points.

Now Ruth, specifically for yourself, my advice would be to take it into small steps.

Take a really segmented approach and when you’re unsure, you should seek advice.

Now for everyone else that may have a trusted partner or spouse looking after their finances, Loose Story can be a really good example for everyone.

It’s important to perhaps start taking a bit more of an interest.

Attend those meetings because it’s a really good risk management approach to take.

Now in our business, we’ve seen a lot of people entering into that phase of life start to look for a trusted advisor for this exact point.

They’re seeking to find someone who can be a backstop or a third party to ask these really important questions.

So if we do leave or we do lose a loved one, you know that you’re covered and you’ve got a trusted professional looking after your best interests.

The second question we have today is from Amanda.

Amanda asks, her daughter’s about to purchase a home and she wants to provide some financial assistance.

How can she do this without potentially giving up her if her daughter breaks up with her de facto partner?

Well, Amanda, you raise a really good point.

Thank you for watching and thank you for your question.

Now, when you’re looking to provide financial assistance to a child, there’s some really important factors to consider.

And this is really common in today’s society.

We know how quickly house prices have gone up and the bank of mum and dad is alive and well.

Now, when you’re looking at providing this financial assistance, often people go to a loan agreement.

A loan agreement is structured between your children and the parents to provide this financial assistance.

Now, this can be really effective

to help provide that asset protection if something goes wrong in your children’s lives.

But what people don’t consider is the ramifications it can have on your children’s personal borrowing capacity.

Now let’s look at an example.

On the table shown on screen, if a parent was to provide a $10,000 loan to their children, it could reduce their borrowing power from a bank or a lender by $30,000.

Now a $50,000 loan from the parents could reduce it by up to $140,000.

A $100,000 loan reduces the borrowing capacity by $270,000 or a $200,000 loan from the bank of mum and dad may reduce their ability to get a loan from the bank by up to $530,000.

So you can see, although providing some financial assistance to the children can be effective,a loan agreement to help minimise the chances of losing it in a breakup, it can have some really significant impacts on their borrowing capacity from the underlying bank, which may mean they can’t get the property at all.

So what are some other alternatives you may wish to consider?

Well, it can simply be a gift.

If it’s a gift to the child, then yes, the lender won’t look at it.

But equally, if there is a breakup, or if there is a bankruptcy or something to that effect, this money can be divisible and your daughter in this scenario may lose half.

Another really good tool, but something that a lot of people don’t want to consider, is a binding financial agreement.

So here you say, what is a binding financial agreement?

Well, this is effectively the Australian equivalent of a prenuptial agreement.
It defines what assets and how they’ll be divisible in the event of a breakup.

Amanda, in your question, this could be a great tool to be able to minimise the downside of your daughter losing these funds if she breaks up with her partner.

But equally, getting your daughter and your daughter’s boyfriend to sign a binding financial agreement, that might be a bit of trouble in its own right.

So it’s important to seek advice and look at the tools you have available.

Last question we have today is from Cindy.

Cindy asks, are there any further updates to Division 296?

Great question Cindy.

And for those of you wondering, what is Division 296?

Well, this is that really controversial piece of legislation that the government is trying to tax larger super funds above $3 million a greater amount.

Now this has some really controversial elements because one,

The government is proposing not to index it, so therefore our kids and our grandkids will likely be caught up in this.

But two, the tax is on unrealised gains.

And that’s something that’s completely counter to the overall Australian tax system.

Now this will have really significant ramification for business owners who have some business real property within their super funds, or people who have farmland in their self-managed super funds.

As it stands today, Cindy, it has not become legislation.

There was some risk that at the end of November 2024, the government was trying to put this in via their guillotine measures.

Thankfully, this wasn’t the case.

Now, does this mean that we can breathe easier and we won’t see this legislation get through?

Unfortunately not.

Katie Gallagher, who is the Minister for Finance for the Labor Government, has clearly put on record that this remains Labor’s policy and they will be re-looking at this back when Parliament reopens in February 2025.

Now keeping in mind that we know there will be a Federal election in the first half of 2025, it’s anyone’s guess as to whether this will see the light of day.

But rest assured Cindy, if it does get legislated there will be a complete episode talking about the tips, the traps and what you need to know.

So today we’ve had some really great questions from Ruth, Amanda and Cindy covering a vast array of different topics.

Now if you have a question that you want answered, please email it through to ua.mo1781064966c.htl1781064966aewts1781064966urtne1781064966@ecee1781064966RM1781064966 and we’ll be sure to cover this in a future episode.