Secure of the future

Farmer Freddy contemplates the future of his farm after he has gone.

As another of Farmer Freddy's birthdays rolls around, he can't help feeling that he's getting old.

As he often finds himself doing these days, Freddy contemplates what the future has in store for him and his farm. In particular, he starts wondering about what will happen to his farm after he dies.

Ideally, he would like it to stay in the family - and at the very least, he is keen to ensure the tax man and any creditors can't get their hands on it.

He decides to talk to his daughter Pebbles (who's a lawyer), about it.

"I was talking to a mate of mine the other day," explains Freddy, "and he was going on about family trusts and asset protection, gifting programmes and rests homes. It all sounded very important, but also very confusing. I was hoping you might be able to shed some light on it all."

"Are you worried about the farm?" asksPebbles.

"Not so much worried," says Freddy. "I just want to make sure it's there for you and the rest of the family after I've gone".

"Well Dad, it's quite common for people to transfer their farms, houses and other assets into family trusts," explains Pebbles. "By doing so, they protect those assets from potential relationship property claims or claims by potential creditors.

"Although the assets are sold to the trust, no money changes hands. Instead, the trust agrees that it "owes" you the money. The debt from the trust to you is a loan. Over time you reduce this loan by making a "gift" to the trust. That's the gifting programme your mate was talking about.

"Under the current law, you are allowed to gift $27,000 per person, per year, without having to pay gift duty.

"It's topical at the moment too, because the law is expected to change so that gifting programmes are no longer necessary. Under the new law, which is expected to come in at the end of the year, there will be no limits on the amount you can gift in any one year. This is going to make the transfer of assets into trusts much easier".

"What about all that rest home stuff he was talking about?" asks Freddy.

"Well, Dad," says Pebbles, "I think he was referring to the fact that if you need long-term residential care in a rest home or hospital, the Government will provide a residential care subsidy to pay for that care, but only if your assets and income do not exceed certain limits. However, there are ways to structure your affairs so that you do not exceed these limits, including through the use of trusts. But you have to be very careful at what stage you transfer your assets though, or the Government will still make you pay".

"You've certainly given me a lot to think about there, Pebbles", says Freddy. "Have you got time for a cup of tea?"


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