除却巫山不是云，
取次花丛懒回顾，
半缘修道半缘君。
Today is a good day. I have gotten back to my work. The search continues as usual. The west has suffered another round of badness. More and more shopping stores were closed. The filtering down is slow but surely. Retrenchment has also started in earnest for big institutions. I also witnessed some trouble already among hotel owners. So the hunting season has opened once again for me. Thank you for such a nice blessing ...
Passing on is not a choice, but a necessary step in time. Planning this step is therefore an important item. The largest items must therefore be the properties and business ownerships.
Properties
Most properties are joint ownership with the spouse. When the first one passes on, the ownership automatically falls on the surviving spouse. This will not attract tax. But, when the second one goes, the taxes could be bad.
So the best ownership should be a joint tenancy of 2-generation. So even if the first one goes, the other being the younger generation will have at least another 50 years to plan. Once the first one goes, it is advisable that once the third generation is in striking age of an adult. Transfer that ownership as soon as possible to the joint-tenancy with the 3rd-generation. It will attract tax but it should be quite minimal. This method of leap-frogging will ensure the ownership to be intact.
Taxation is very expensive. For example, a normal house will rise in valuation within a 30-year time period to about 10 times. So the original purchase price is meaningless to the tax recovery. The best planning norm must be to assume that the current valuation is fully taxable. At say, $V valuation, 50% of that is taxable as income to the next owner. At a maximum tax bracket of 35%, approximately 17.5% has to be paid as taxes if the ownership is to be transferred. This is worth approximately 3 years of rental commitment.
The sneaky insurance agent would have suggested that I buy life insurance and upon my death, the insurance payable should be enough to pay for the tax due. This is a LIE. No point giving money to the insurance agent to make her fat. Since all my properties are settled in cash. Just take up a mortgage with the bank for the 20% leverage and it will take about 3-5 years to clean up. After that, the properties would have a renewed lease of life of at least another 50-70 years.
Another method is to keep about 20% of the rental money as spares in the event of my passing. That's approximately 3 years of rental income.
Since the properties are freehold, age is not an issue.
Business Ownerships
Transfer of business ownerships is way way more tricky. If possible, try to reduce that business ownerships to only a few types and transfer them as early as possible to the next generation. I shouldn't need so much to survive.
Unfortunately, transfer of business ownerships involves knowledge transfer and that is the tricky part. Therefore, not all business types can be transferred easily.
However, business entities are great at making money once it is established with little cash outlays.
Lessson Learnt:
Business ownerships should as far as practicable be made extremely capital-intensive so that the knowledge component is kept extremely low. That way, it would be a lot easier to transfer that business entity. As such, property business has such a nice touch to being extremely capital-intensive.
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