Beware of gold-diggers when bequeathing treasure

I AM giving about $300,000 to each of my three children, rather than having them inherit it after my death. Funds have gone to two of the children to help them buy their first house. However, my eldest son, who lives and works in the US, owns his own house but might return to Australia. This son is in an unhealthy marriage I suspect will dissolve. His wife is very materialistic and if she has access to the money she will spend it on luxury cars, designer furniture, Gucci handbags and so forth. I would like to be able to provide my eldest son with his equal share of the inheritance but have the money protected

so his wife cannot access it now or in the future. What would be the best way to

achieve this? Should I buy an investment apartment in his name in Australia? Or is

it better that I transfer some blue-chip shares to him? I would prefer a share transfer but

is there a way I can put these shares in escrow? R.W.

Lucky children! I suggest the best approach is not to place any money in your eldest son's name for now. Rather, try to segregate his shares within your holdings so he and all the others can readily identify this portion of your estate. Presumably, everything else will be eventually divided in three.

See your solicitor about changing your will so your eldest son's portion goes into a testamentary trust on your death, with him as the beneficiary and, say, all your three children (assuming they get along) as trustees. It doesn't quite solve the problem because, if your son is the sole beneficiary, then an aggrieved wife could argue, through her divorce lawyer, that since he is solely entitled to the money, it belongs to him and thus to the marriage. Your solicitor might suggest naming a second or even a third beneficiary to prevent this.

Ultimately, your best plan is to keep a firm grip on your perch until after the divorce.

Handling the freeze

I HAVE an investment with a large insurance company's wrap account. Due to ill health, I wish to invest these funds elsewhere. Included in the investment are shares with APN Property for Income Fund, whose assets have been frozen. What is the best way to handle this situation to minimise any possible losses? K.B.

Hardship claims for this fund are permitted by ASIC but have been suspended temporarily by APN.

Even though the fund is frozen to withdrawals, I know of no legal reason why a change of ownership cannot be registered by APN. Your situation is complicated because the ownership of your investment rests officially with what is known as an "investor-directed portfolio service". You need to contact the company and ask what procedures it has in place to allow you to transfer the investment into your name.

According to Morningstar, the fund shows a negative compounding return of about 8.4 per cent a year over five years, implying a loss of about 50 per cent, even after income distributions. Those figures won't change by transferring ownership and might be worsened if your wrap account charges you exit fees.

Managing a merger

I AM 56 and my wife is 52. We set up a self-managed super fund (SMSF) last October with both of us as members. I rolled $200,000 of my corporate super into this but still have about $50,000 with the CBA OSF Mix 90. My employer's contributions of $9000 a year are directed to my SMSF. My wife's super of about $35,000 is still with Sunsuper. I am considering rolling over my wife's super into our SMSF. Is it appropriate for the funds to be merged or should they be kept separate given our different ages? Our SMSF assets are solely in cash and I propose to set up a separate cash management account within our SMSF to segregate her rollover. I am also considering buying a residential property within the SMSF in the next three months or so. What are your thoughts on this strategy? If I don't buy a property, should I be looking at a transition-to-retirement strategy via our SMSF? B.K.

If you and your wife feel you can together match the performance of your wife's public super fund, she is entitled to roll over her super into your SMSF and redirect her employer's super contributions. Don't forget she is an equal trustee and should have an equal say in the fund's management.

There is no need to physically segregate her funds unless you intend to start a pension before she does, in which case you might as well keep the benefits separate and avoid the requirement for an actuarial certificate later on.

I don't think you have enough money in your super fund to buy a residential property in a capital city. If you press ahead with that strategy, you would have to borrow a large amount and I don't think this is a good time to (a) buy a property, or (b) take out a large loan. With only nine years to go to retirement, such a focus on a single, highly geared asset in your fund is unlikely to produce a satisfactory accumulation of assets by age 65. For the moment, I like cash.

I would hazard a guess that your fund contains a 100 per cent taxable component, because it was probably formed purely from employer contributions and earnings. Since you appear to be in the 37 per cent tax bracket and a transition-to-retirement pension is taxable while under age 60, any pension you begin would be 100 per cent taxable, albeit with a 15 per cent tax offset. If you then salary sacrifice an equal amount, or even if you re-contribute the pension payments, there would be little benefit and much more administration.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW 2026. Helplines: Banking Ombudsman, 1300 780 808 pensions, 13 23 00.