I comment on the case of a father who wants to facilitate his children’s inheritance – 01/03/2024 – Market

Naturally, consuming today always sounds better than saving. We usually give up the pleasure of consumption for two reasons: to consume more in the future or to maintain the current level of consumption in the future and to allow loved ones to have a better life when we are no longer present.

Last week, we talked about the case of Helena who wanted to leave an income for her daughter. However, we only discuss the amount needed and not the form. Today, we will discuss the form, that is, the most suitable products for succession.

Many prefer not to discuss death. Retirement and succession are two events that will occur and you cannot avoid them. Either you solve the problem or leave a problem to others.

At this point, let’s discuss Omar’s doubt.

Omar is a civil servant, 71 years old, and has two adult children.

This doubt refers to 3 of the 4 properties he owns. However, he should extend the issue to everyone. At this moment, he does not wish to sell the largest of the properties, which represents 67% of the total property value, as it is occupied by one of his children. I’ll explain ahead why not including all four properties can become a problem.

Your concern for succession is exemplary. You can even discuss the choice to leave something to your children. But it is a personal decision and, as it was made, the important thing is to analyze the most efficient way to achieve your desire.

When talking about inheritance, there are four principles of efficiency in succession that characterize the suitability of a product. The investment needs:

• Be perfectly divisible
• Have low expenses for transfer to third parties, that is, lower expenses with inventory and taxes
• Allow quick transfer to beneficiaries
• Provide flexibility to the beneficiary to decide how to best use the benefit

I know I’m going to upset many readers, but Omar is right. Real estate is not efficient for inheritance purposes. Real estate violates the four principles.

They are not easily divisible, have a higher succession cost, are slower to transfer and do not provide any flexibility to the beneficiary.

For succession, the most efficient products are private pensions of the VGBL type and life insurance, commonly called “whole life”. I’ll talk more about them below, but first let’s discuss more about the real estate option, as many readers like it.

If you are like Omar, who has more than one child, leaving real estate as an inheritance is one of the worst decisions. I have seen countless cases of fights between siblings and between parents and children over what to do with the property.

These fights usually last for years and the property deteriorates during this period.

The alternative of donating real estate between your children during your lifetime is also dangerous. For example, Omar could consider donating the larger property to the son who uses it. I bet you’ve already thought about this. I know you thought so, because several readers have already written to me saying they did.

Please be aware that this anticipated donation may be subject to legal action in the future, as the properties do not have the same value and one of the heirs may feel harmed and ask for the annulment. This could cause a lot more costs for everyone in the future, in addition to a family fight. There is also no point in disguising a sale.

In the inventory process, everything that was previously donated to legal heirs needs to be reported and reduced from the inheritance.

Another more appropriate way to inherit properties is to place them within an asset holding company. This is nothing more than a company created to hold the assets.

The alternative eliminates some of the problems. Shares of a company are perfectly divisible, provide some flexibility, but will still go through inventory with their costs and deadlines.

Additionally, even shares in a holding company can cause fights between siblings, as each one may have a different desire about how to best use the resources. I don’t recommend that you test sibling friendship with money. The result is not usually positive.

Excluding the alternative of real estate, one solution would be to leave financial investments as an inheritance. These, although they are perfectly divisible and provide flexibility, will also involve the costs and deadlines of the inventory process.

Only private pensions of the VGBL type and “whole life” insurance meet the four succession efficiency criteria.

Between VGBL and life insurance, it is not possible to generalize which is best. It is necessary to carry out a more detailed analysis of personal characteristics such as health, age and desires to use resources.

Each has advantages and disadvantages. In general, while life insurance has a cost, but provides asset leverage, which could make the inheritance larger over a given period, private pension gives Omar more flexibility over the use of resources while he is still alive, in addition to have lower cost.

In Omar’s case, Life insurance is no longer a viable alternative, as most insurers limit the age to 65 years.

Therefore, I suggest that Omar continue with his plan to sell the properties and invest in pensions, as it is the most appropriate. This sale can be made calmly, taking advantage of better prices.

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