Die with zero: Why you should give it away sooner

[music] Hello and welcome to the Australians Money Puzzle Podcast. I'm James [music] Kirby. What is the idea behind your

Kirby. What is the idea behind your investing? What's your long-term idea

investing? What's your long-term idea when you invest?

We're going to assume that sooner or later, perhaps already you own your house. Perhaps already you actually have

house. Perhaps already you actually have enough to retire. Maybe you don't think you do. So then the thing is if you have

you do. So then the thing is if you have a family, how are on earth are they going to buy a house?

You know, they've just put lending limits on home mortgages at six times

for the banks for 20% of their volume.

Six times. No one's buying a house at six times in the major cities. It's

eight times, nine times, 10 times. This

gives you some idea of the cost that the uh younger generation face. We've got a lot of issues I want to talk about today. But the first thing I want to

today. But the first thing I want to talk about with my guest Will Hamilton, regular on the show of Hamilton Partners and longtime member of the Baron's top 150 list and in there again of course of

late. I want to talk to him about a

late. I want to talk to him about a piece he did recently on the Australian which sparked a lot of comment. It was

basically all about the notion of leaving nothing behind or as the Americans like to call it die with zero.

That's a book that's a it's been a bestseller over there.

Thank you very much for having me. I was

intrigued with quite a personal piece you did actually I thought on this but it is something it's a kind of a paradox that a lot of people face particularly I think property investors you know they are stretching themselves they are

negatively gearing they are they are taking risk they are going through the relatively mundane issues of running investment properties and they're doing it with mixed success

often so that they can help their kids buy a house kind of a perverse circular situation so tell me about what this concept and your impressions of it. It's

something we get into discussions with clients a lot and you know we're wholesale license and our clients generally have you they're in a fortunate position and when we get into

estate planning and also planning for how they assist children you I often there's a bookshop up in the shopping center above where we are Dimmick and I always say on the way out go and buy

Bill Perkins uh die with zero now and it's all relative it doesn't mean die with zero it's give away to your children an amount that you can afford. So, you

know, I did get a lot of emails people and thank you very much giving me some advice on the article to the extent you can afford it and to help you because it's more important to help your children while they're in their 30s and 40s rather than when you

die and they're in their 60s.

Um, and that's when they need it, especially with the housing differential when you am just a baby boomer. Um but

when we went out there to buy houses and you four to five times your income level versus as you rightly said you 10 times plus today and these are issues that you

know our children therefore need our assistance to the extent that we can provide it. Now there's only so much you

provide it. Now there's only so much you can say in 900 words and you again some people wrote in and you know one person was a little bit emotional with respect to the fact that they'd done this and

then their children got divorced. Um so

you do need to get some advice and saying it's general advice only but you need to go and talk to your financial advisor about this and then they're going to put you in the direction of a

family lawyer. um be it loan agreements,

family lawyer. um be it loan agreements, be it financial agreements that you may want to consider and I think that's a very important important so that protect

children with the assets that they bring into a relationship.

It's interesting you know just that issue of the level of house prices that have sparked particular interest in this. It's always been around as a

this. It's always been around as a concept but it's got an edge now. You

know, I was reminded of the old joke about how do you buy a house for 400,000 in Sydney's Northshore. You know, you buy it in 1979 and that's what you're saying, right? I

don't know how much you paid for your house or I paid for mine, but you know, the figures are laughed at by the people who are buying houses now. Now you so let's just keep it on that issue of and

this is a wider issue obviously listeners you know you can you could this could be for any reason but I think obviously the core reason is very

compelling you know why your son or daughter will probably be in their late 60s when they get your inheritance statistics would suggest and in their

late 60s if they're the type of people who are active investors strivvers and they listen to a show like this, chances are they've paid their house off by then. And there was years

where they had absolutely nothing and they and maybe it wasn't necessary because you know you were accumulating at the same time. Now the thing I'm skeptical about will is this issue of

financial agreements and loan agreements and sending people to lawyers to do this. Tell me why you think this is

this. Tell me why you think this is necessary and is it about keeping it literally within bloodlines to be brutal about it.

I think that depending on the age of a child, loan agreements are something you should consider. Now, whilst the house

should consider. Now, whilst the house price goes up and as I said, you're protecting what they bring in. I think

financial agreements are a very personal thing and we've got clients that insist on them and we've got clients, no way I would ask my children to sign that. So,

I'm not making a judgmental call and yes, I'm not making a call either way. I

think you need to make a decision based on something that's right for you and your family.

On an loan agreement, I think that's very different matter that they're, you know, not even $1,000 for a family lawyer to prepare and you can actually

provide something which I think is the is a safe thing to do.

But if it's a loan agreement, you're not giving it to them.

Correct. Well, that's on the depending on the structure that it's in and how it's done, that loan can then be forgone on Yeah. Yeah.

Yeah. Yeah.

I see. All right. But the but so what is the overarching sort of logic of these agreements? It's to protect your

agreements? It's to protect your children from unexpected events in the future such as divorce. Am I close?

divorce. Am I close?

Correct. I think what the logic of these and if you speak to a family lawyer they'll say you could protect what you bring into a relationship you can't protect what you create in a

relationship that's open sor and so it should be not saying that you should protect against that you can't you shouldn't yeah I wonder why people don't do it will I think a lot of people don't know about

it you thinking of an email that I got from one person was you as I said quite emotional about that because this is what happened they gave some money and child got divorced wondering well did

you know about this why sometimes you should you should go and get advice and your financial advisor discusses that with you and then we'll introduce you into a family lawyer

that can have a further discussion and they're not expensive financial agreements that's a different matter altogether I mean we see just this morning the usual here we go again the annual sort

of ask for how much you should have to you know be comfortable in retirement etc and it could be $70,000 a year for a couple and and that means you need to have well you certainly want to have a

million you know officially it's something like 1.6 6 1.7 million depending on the degree of risk of which you take but the point I'm leading to is that at a certain point we clear off or at a certain point we say okay the house

is paid off and and many investors once they have a certain number a certain figure in super and maybe they keep working so this

figure doesn't have to be anything as high as these calculators say and many listeners to the show will have much more than that but I I wonder is

this concern about not having enough in retirement an issue that stops people doing it even if they have plenty because they say look

if the world collapses if the markets collapse if I'm stuck on cash rates if the banks collapse how am I going to survive all my retirement money is at risk yes you say I have a lot but maybe

I don't really have a lot because it's all at risk and so I can't hand it over just yet because I worry still that I don't know how much I'm going to cost in the fullness of time. And let's say the

nightmare scenario where a couple are both in some sort of elaborate age care with multiple medical bills for years and years. Well, they could rack up a

and years. Well, they could rack up a hell of a lot of bills. Point I'm making is do you think that's actually stopping people too?

Yes, I think that it is, as I said, everything's relative and it's personal.

So, I'm not saying you must do this. You

do it to the extent you can afford to do it.

And I also think it's generational.

Tell me about that your concept of it being intergenerational.

So I well first of all I wrote this because I do believe there in you know and there's intergenerational inequality and said that created discussion through the comment section. A lot of people didn't agree on that point.

Yes. They'd agree if they were perhaps under 30 though.

Yeah. Correct. So they didn't agree on intergenerational inequality which I do believe there is.

So that's where I'm coming from and that's what I discuss with people. But I

know my parents there is no way, you know, my parents would consider this because of a lot of the points you brought up there. You know, my mother's in her 90s and she's worried, very worried about the cost of age care and

her own health. And I think that you're at a point in time when you can look at this and you can look at it objectively.

There's other things in your life when you're focused on other things. And as I stress to the extent that you can afford it and I understand some people can

afford to a far greater degree than others and I suppose the imperative that drives people to make money it's almost in conflict with the different dynamic of

giving it away in many cases. Where else would that be relevant apart from home buying? Well,

as I said in the article and this again I believe in it a lot of the things Bill Perkins said but I do want to stress in the book you know he's obviously a very wealthy man and that comes across so you have to adjust for that and he's

American so we have to bring it in on a cultural perspective but I also think the thing on creating experiences with you know to again the extent you can afford it is so if you can afford to create experiences with children and grandchildren

and memories as he says memories really important so those experiences lead to [snorts] memories you know cuz the one reality is we're not going to be here one day. And

I thought that was a really lovely thing. It really resonated with me. The

thing. It really resonated with me. The

other thing is again and some people don't agree with private school education as well. And that back in the feedback I got but if it is important you know education is you know there's nothing more important in a child's life

is education be it secondary education or tertiary education. One of our clients is very philanthropic in ensuring that those that wouldn't ordinarily be able to go to university

can and he gives through Melbourne University on that. I think it's lovely what he does.

So typically this would end up being not it's obviously too late anyway for some investors to pay for their own children by the time they get to the position

we're talking about. their children will have had their school experience whatever that might have been and however that much that might have cost.

So we're talking about grandchildren I mentioned often and it's interesting we've got a question coming up from Sandro exactly about this but on that one is there any guidance you can give

on that you mentioned about loan agreements with lawyers for buying homes or perhaps assisting with the equity in homes I think which

is typical that someone pays 10% or 20% of what the house is going to be how about on the schools any ideas on that one well someone once said to me if you could find an investment that's linked to the CPI of school fees is go for it.

CPI of school services [laughter] cuz exactly that. So you there's a friend of mine in Sydney and he once said that to me and I always laughed and I've quoted that often.

It's more relevant every year.

So there are bonds there education bonds and things like that which you can buy or you can just put something away and depending on again you to the extent that you can afford it and that's what these are the some of

the things which I think you can consider. I'm not saying you should but

consider. I'm not saying you should but you can.

Just one last thing on this. We've had a lot of people on the show skeptical of education bonds.

I am too.

You are too. Okay. So, so your point is perhaps to have a savings vehicle, correct?

That is focused on this issue, but it does not necessarily have to be an education bond. And the point I always

education bond. And the point I always make on the show, folks, is the ed they're called education bonds, but they're nothing to do with education per sale. They are marketed as such. And

sale. They are marketed as such. And

it's a scheme, but it wasn't designed for paying school fees. It has been adopted as such, but that was not it its core. All right. Really interesting.

core. All right. Really interesting.

I've got some really good questions I want to get to, and it's from Lily, who says, "I can't keep up with the number of grants for first home buyers, but I

see now that the latest grant for shared equity has come out, but of course, it has been surpassed by the first home buyer scheme.

At the same time, we've seen lending limits imposed by the banks in the same area. What gives? Yeah, thank you, Lily.

area. What gives? Yeah, thank you, Lily.

So, they're putting lending limits exactly on the same people who are trying to buy a house because the ones who need to go over five or six times income will in will substantially be made up of first home

buyers. And then they're rolling out

buyers. And then they're rolling out grants, a universal first home deposit scheme, which is going so hot, folks.

It's going so hot that they're doing overtime in the departments of the banks trying to fill this out and we're getting a super hot segment of the market which ironically is the exact same market they're throw throwing the

grants at.

What do you think will it's like look I don't know if it still exists but you know a couple of years ago the Victorian state government gave stamp duty relief up to $600,000 and the miniature went overseas you had to pay

the full stamp duty. So it was thing you give when you don't give. And I do believe the federal government's latest equity share scheme that's absolutely

pushed housing prices up. And it can't not have the way they they've structured it up to a million dollars and you know shared equity. That's with a 5% deposit

shared equity. That's with a 5% deposit down. That's simple as it was only going

down. That's simple as it was only going to do that.

The other thing I worry about too is that it overheats that particular segment. Not only that, but like the

segment. Not only that, but like the whole market gets skewed to that segment to this economic theory of push to price, you know, that they actually it's misthought. It was a thought bubble

it's misthought. It was a thought bubble during the election that they've had to roll out.

Well, Lily, I hope that's useful to you.

All those grants are there. And by the way, there's also the first home super saver scheme, which [snorts] I think this government are very keen to not advertise because I don't think they

like it. All right. Now, listen, folks.

like it. All right. Now, listen, folks.

I want you to listen to this very carefully. Here's David. This is what he

carefully. Here's David. This is what he says. Someone on the show mentioned that

says. Someone on the show mentioned that based on current legislation, the amount in the pension account can increase taxfree without limit. I

want to know is he right? If I retire at 60 and I transfer 2 million into my pension account and assuming this balance grows yearly, the full amount in

the pension account will always be tax-free.

The 15% tax coming in at division 296 does not apply to this the pension amount. Okay, just to reiterate the day

amount. Okay, just to reiterate the day you retire if you have up to 2 million that once it's in the box basically once

it's in the can inside the super system the TBC to be precise it won't be taxed even if it grows to 3 million 4 million y right or wrong

right in fact he answers it in his question itself and that that and he says Jim Char's only talked about division 296 which is 15%

on tsb more than 3 million the situation of between 2 and 3 million appears to been over interpreted. So if I have 2.4 million in super phase I transfer 2 million into accountbased pension at the

age of 65 I will have to leave 400 into the accumulation phase correct that's on that but my 2 million retirement phase can grow to organically as he says 2.4 4

million and the earnings are taxfree not 15%. Correct. Correct.

15%. Correct. Correct.

Yeah. So, so that's just a final word on that folks. Okay. That's how it works.

that folks. Okay. That's how it works.

The 15% tax, the new one is on amounts above 3 million. And so, for instance, how that

million. And so, for instance, how that might occur is for instance, let's say if you had 4 million the day you retire, well, only two of that would go into that can grow forever and never be taxed. Is that's right?

taxed. Is that's right?

Yeah. You got two in a conf.

And the other two, well, you can do what you like with it, but you're probably going to let it fall into accumulation cuz it's it becomes 15 and that's hard to beat. Of course, there are people who

to beat. Of course, there are people who also have more than 2 million and they haven't even retired. They're

relevant, too. So, we try to cover all angles here. This is easier sometimes

angles here. This is easier sometimes folks to pin down in in print than it is when we're talking because it's a print obviously is more precise. Okay. will

question from Sandro which does kind of correspond or echo some of the issues we talked about at the start of the show about leaving the extreme version of dying with zero but it's not of course dying with zero

it's about thinking about whether you should help people in your life earlier rather than later I want to invest for my grandchildren my

initial thoughts are to add approximately 2,000 per child annually on their birthday into the ASX 200 an ETF I suppose that is or something similar and this should compound to

something significant in 20 years when they go to buy a house I'm interested in some ideas and strategies on how to set this up the most cost effective entity

whose name should it be in most tax effective way etc any information would be much appreciated okay Sandro you say you will

yes so first of all Sandra go and talk to an accountant I presume they might to ask you to set this up in your name in or the parents name in trust for

[snorts] the children. That's the first thing. So just otherwise the there is

thing. So just otherwise the there is tax at the full marginal rate for children. Um so you want to get some tax

children. Um so you want to get some tax advice on that first of all. The second

thing is I wouldn't put it into an Australian ETF. I would look at a global

Australian ETF. I would look at a global equity one. Global markets are you know

equity one. Global markets are you know they've got growth in other parts. So

that's the second thing I would do is just make sure you invest globally rather than just domestically.

Yeah, very good. And of course, not advice, Sandro, just information only.

The fact is the majority of your money will be on Wall Street. But that varies over the years, Sandro, that there's times where that's been under 50%. But

in recent times, it has absolutely just mushroomed inside global markets. To

some extent that reflects a certain dullness in Japan, Australia, even Europe over various years as the US and the big tech companies just went through the roof and still do with the AI boom.

All right. Now, a final question is from Sean. I wonder could you consider doing

Sean. I wonder could you consider doing a segment given all the accounting maneuvers and profit shifting that companies use, why don't governments

consider replacing corporate tax with a universal revenue tax? That way the economic activity that takes place within Australia and its borders will be taxed here not when a company chooses to

record its profits. Obviously the the sentiment is a noble sentiment there Sean and in fact a lot of economists wouldn't have a problem with your concept and indeed the productivity

commission has recently put out something similar to that which is a sort of is it [snorts] is it a cash flow tax was that the idea will that they would y

look I think what um Sean said has some merit but the reality is that unless you get both sides of politics together we're not going to tackle the inequity that there is in a tax system

and one of the big things that we need to tackle in this tax system is the PAE and the high percentage of total taxation raised through that

which is not indexed unlike in some countries and therefore we have bracket creep as well as a major issue. So look our whole tax system tax act was written in

1936. I think that says it all.

1936. I think that says it all.

Both sides of politics should get together on a bipartisan basis and tackle this.

And we're inordinately taxing people.

Correct.

Individuals get taxed. They kind of carry the whole system which is of course working individuals that is which brings us back to the very notion at the

start of the show about inequity and how even inside super like people say oh super it it's unfair because of the tax breaks for older people. But it's unfair even inside the system because the

concessional tax breaks for contributing to super are they are low and they haven't moved for years. Meanwhile, the

amount you can have gets indexed all the time. Not to mention the pension which

time. Not to mention the pension which gets indexed twice a year. Uh so there is plenty of inequity even within super and intergenerational equity at that.

But in your case folks, I think if you've been listening to the show today, I think there was some really interesting notion there and something that's really worth considering and honestly even on a more pragmatic basis.

Well, yeah.

What is the point in hanging on to your investment property for three more years if the money is supposed to go to your adult children who are trying to buy a house? That would be in in sort of

house? That would be in in sort of microcosm, wouldn't it really? And as I say to people, it's the pleasure of giving as well when you can, you know, as and I want to stress if you can

afford it, that pleasure of helping and giving and seeing that reaction and that you the gratitude from giving. And you

know, it was a very big discussion. I

talked about the fact that intergenerationally, those that are of an older generation, this is far more difficult. And I I actually talked to a

difficult. And I I actually talked to a woman in her late ' 80s to do this. And

I said, "Look, you've got no gratitude personally from it when you're dead. Why

don't you do it now?" And some of the grandchildren were in tears. And she,

you know, she got incredible satisfaction from that.

Yes. It's interesting, isn't it? As you

say, there's no point in letting them know that you were really okay when you're gone. Okay.

you're gone. Okay.

Thank you very much for great show, great discussion as always. I'd like to know what you think of that, folks. I

really would. Let's hear from you. The

moneypuzzle@theaustralian.com.au.

Talk to you soon.

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