Agony Aunt: First step: Get a will

Dear Janine,

I am a property manager in my mid 50s and live on my own. I rent the property I live in and have mortgages on three rental properties. I am topping them up a little each week, but haven't worked out by exactly how much. I earn about $65,000 a year and have one son and one grandson. I do not have a will or income insurance. My properties are all in my name. I realise I am a walking and working disaster as far as leaving my son any inheritance. Any help would be appreciated.

ANSWER:

A "disaster" you most certainly are not! Well, admittedly my heart skipped a beat when you said you had no will, but that's easily fixed. You have a good 10 years or more of working capability, a good job and three rentals which are presumably part of a retirement plan. On the lifestyle side of things, you have the freedom of being single and the pleasure of being a granddad. While you don't own your own home, your rentals will hopefully allow for this in retirement.

On the issue of inheritance, what's wrong with SKI-ing (spending kids inheritance)? You will be surprised how many offspring cheer from the sidelines as parents "ski" the cash away.

It's a cold hard fact that most New Zealand retirees have very little choice. While it would be dandy to have enough money in the bank, bonds or property, to create a decent income, you need some serious cash to do so.

Why live on the bones of your backside when you have assets which can be slowly sold and spent in the latter years, if need be?

What you need right now is a jolly good review of your setup to see whether it's on track to take you through to a desired retirement date.

Here are a few tips on getting the right professional help:

Top of the list is a will. Make an appointment today with your solicitor. Getting run over by a bus on the way home from work tonight is going to leave your boys in one heck of a predicament.

Review your mortgage rates. A mortgage broker can look at whether you have the best deals available. This could be a great money saver and get you mortgage-free sooner.

Mortgage-free date. Ideally this needs to coincide with your desired retirement age. Work out if you can afford extra payments to speed the process. Ignore this one at your peril, because a few more dollars a week can knock years off the mortgage and lead to a quicker retirement. If you have to enter retirement with mortgage debt, consider whether you might keep working part time, or cash up the properties to get access to your equity.

Income-protection insurance. Yes, it's a nice to have, but weigh up the price against your risks. Chat to an insurance adviser about what exactly these policies will pay out for. There are a number of traps. Will it pay out for long-term disablement or if you are partially disabled? Find out what the rules are on mental-health issues. Many policies have limitations, but can be avoided with good advice.

Other insurance: Do you have surgical cover? Consider whether it's affordable. Get a broker to review all the house and contents policies you have on the rentals to save money. Look at life insurance. While you have no dependants, if you want to leave the boys an inheritance in the case of a sudden death, a simple life policy for the value of your mortgages could be considered. Basic life cover is pretty cheap.

Tax review. The rules on claiming depreciation have changed. For many owners, depreciation helped push the accounts into a tax-loss position. Without it, you might be facing a tax bill. Check on the impact. Get your accountant to tell you exactly how much you are topping up your mortgages and review overall viability.

Ownership structure. You have a nice, simple, low-cost structure as you own your portfolio in your own name. Given you are single and there are changes to vehicles such as loss attributing qualifying companies, there may be no tax efficiencies in making a change. But your accountant may consider company structures if your properties are about to turn a profit.

Women and wives. You are single now, but that could change. If you are keen to protect your boys' inheritance and keep your assets separate from a partner, discuss this with your solicitor. While a trust provides some protection, it is unlikely to give the best tax outcome if your properties are in a loss situation. In addition, trusts are not bullet proof, because it takes years of gifting at $27,000 a year to get the assets fully into its name. Even with a trust, if you get a new partner, a separate legal agreement will be needed.

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.