Our aunt Rosemary has promised to die tidy. For years this has seen her going through cupboards and finding alternative homes for clothing, household items and memorabilia that she feels she can do without. It has also involved her going through dusty piles of photographs, naming the faces, joining the dots, and popping them into suitable formats to be passed on to “the children” of the family, who of course are no longer children at all.
What if our recently deceased uncle-with-large-property-portfolio had done this too? Got the children on board, and provided them with sufficient knowledge to manage his portfolio while he was competent enough to provide that guidance.
It could have started when they were quite young. Financial planners suggest educating children (or young adults) in property acquisition, administration and management, through exposure to their elders’ portfolios, or via seminars, books and other relevant material.
One step further would see them becoming actively engaged in portfolios through being employed to acquire, administer or manage properties, a simple step that would not raise any control, tax or other negative consequences, while giving them valuable exposure.
More challenging still, would be the option of appointing one’s children to the board of the trust that holds the properties, or the company that owns the properties.
With luck, this may result in them becoming property investors of their own volition before their elders passed away. However this done, there is also a chance that they could become meddlesome, exercise unintended control, outmanoeuvre parents through acting as a majority, invoke unforeseen tax consequences, be made to sign sureties, be subject to sibling rivalry or ostracism or simply, through inexperience lose or jeopardise the portfolio. Protection, though, is at hand.
In cases where children are brought on board, one possibility is to have a well-drafted protective discretionary trust which ensures that while children are beneficiaries and are involved in the portfolio, they do not have any direct influence on it.
One can also set up different trusts for each child – a simple and unambiguous structure – where at a future point, each child will be appointed to the board of their particular trust, their actions never affecting their siblings or their siblings’ portfolios.
Another option, where multiple trusts seem cumbersome, is to establish one trust that allows for a number of sub-trusts within it, each for the benefit of a different nominated beneficiary.
A complex subject matter, but as the inevitable inevitably happens, and we do want our children or beneficiaries to achieve the maximum from our portfolios, the exploration of options is well worth the energy. Added to this, if these efforts lead to our children catching the property bug and understanding that property should always be part of their investment strategy, we’ve achieved first prize.