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Wealth Brief The Wealth Brief is brought to you by Suite 1/36 Sunshine Beach road, Noosa Heads, Queensland 4567 T: 1300 761 236 E: advice@insurancechampions.com.au W: www.insurancechampions.com.au
In this issue 12 Action Tips for 2010.......................................................................................1 Do You Really Want to be the Executor?.....................................................2 Superannuation… Why it’s not a case of “set and forget“? . ..............2 Insuring the most important risk in small business................................3
Will Your Income Protection be Enough?...................................................3 Do Insurance Companies pay claims?..........................................................3 Use a Trust to secretly buy your neighbours house................................4 Protect Your Privates!.........................................................................................4
12 Action Tips for 2010 1. Make or update your will If you want to make sure that your loved ones are provided for in your Will, that your estate is divided in the way that you wish and any bequests reach those you intend them for, it’s vital that you make a Will and keep it up to date. 2. Get some Professional Advice Good information and advice can come from a variety of different sources. This could be a licensed financial planner, an accountant, lawyer or insurance specialist. Don’t wait until after the event to seek professional advice, the delay could result in you paying too much tax, to be underinsured, or to leave yourself open to legal issues. 3. Get properly Protected Reviewing your current level of insurance is vital to protect you and your family. If you have taken on new debts, increased your income or changed jobs, these and any other significant changes should trigger a review of your personal insurance situation 4. Reduce your CGT liability By holding your investments for more than 12 months or postponing the sale of assets until your taxable income is lower are just two ways to reduce capital gains tax. For business owners there are a range of concessions that you could be eligible for when selling active assets. You also need to get professional advice in relation to the ownership structure of assets and too have these in place before you invest.
5. Get yourself a plan Write down everything you want to achieve. When do you want to retire? How much money Will you need? Put a time deadline on achieving certain goals and review these often. If you want to retire on $100,000 a year after tax and inflation you will need approx $2,000,0000 invested. Will Superannuation be your wealth creation vehicle, property or shares?
a general rule this should be a lump sum to cover 6 months of your normal expenses. This lump sum could be invested in an account that earns interest but allows you easy access without penalty. It could be a financial buffer you have built up on a line of credit mortgage or loan draw back facility. Income protection provides a tax deductible way to cover up to 75% of your income in case a sickness or accident prevents you from working.
7. Use your home as a springboard to wealth If you own your home or have sufficient equity, you can gear against your house or set up a separate investment loan that can be used for deposits on property or leverage into shares. The interest you pay would normally be tax deductible and by having a separate loan there will be no confusion between personal and investment expenses.
10. Get rid of Non-Deductible debt first Your main aim should be to reduce nondeductible debt as soon as possible. This could be your home loan, non-deductible car loan and any credit card debt. You are paying these loans with your after tax dollars and apart from your home loan they are normally depreciating items! Leave deductible loans until last as the government is footing part of your interest bill with tax breaks.
8. Have you got all your eggs in the same basket? Investments perform very differently and when the share market is booming, the property market could be flat. If you have a diversified investment portfolio of shares, property, managed funds and fixed interest this should reduce the volatility and even out your returns. Are you investing for cash flow, capital growth or both?, inside or outside super? These are some of the discussions you should be having with your adviser. 9 .Have some emergency money set aside You should have sufficient funds set aside to cover any unforeseen circumstances. As
11. What structure are you using? Make sure you hold assets in the most appropriate structure. Individuals, companies, trusts and super funds are all taxed differently on their capital gains and income. Speak to your adviser or accountant about a strategy that’s suitable for you. 12. Get started now So what are you waiting for? We are now in 2010 and the years are flying by. Take control of you finances and investments and look at the real reasons why you are delaying. If you’ve had some bad experiences in the past then work through them, learn from them and get started!
Thanks for your support in 2009! Thank you again to everyone who has referred their family, friends and business associates to us in 2009. We really appreciate your support and confidence in us to give the referral.
We are always looking to improve in the delivery of our services to you, and want to make sure you are getting what you want from us and would appreciate your feedback.
Please take a minute and consider if there is anyone you know who would benefit from our services in 2010.
Do You Really Want to be the Executor? If you’re the eldest sibling in the family, or deemed to be the “most responsible”; if you’re seen to be a good friend by someone; or a fine upstanding citizen by others, chances are you will be asked to be Executor for someone’s will.
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Determining what assets may need to be sold to pay outstanding debts – this may be defined in the Will or by established legal definitions;
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Arranging the sale of all assets which are not to be directly transferred to the beneficiaries – including the home, investments, business interests and personal chattels;
After your ego has given you a pat on the back and you’re feeling good and wanted, just pause for a moment and take stock of what it really means to assume this most important role.
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Arranging the funeral;
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Determining the Assets and Liabilities of the estate;
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Applying to the court for probate, if required;
Distributing the remaining assets to the beneficiaries according to the terms of the Will.
For all this you may find yourself in the middle of family disputes and even subject to legal action from a dissatisfied beneficiary or creditor. If placed in this position, the Executor needs to be able to manage their responsibilities as impartially as possible. The Executor can be held personally liable if a beneficiary suffers financial loss as a result of the Executor’s actions or inaction, and in some instances, be legally liable for any losses incurred.
You need to be aware that when the person dies, you will be required to spend a significant amount of time carrying out your responsibilities and these can be onerous. The actual functions will vary from one situation to another and, to some extent, depend on the surviving family members. However, the legally defined duties include:
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If, after considering all of this, you don’t think you can honour the person’s request and fulfill the Executor’s role appropriately, the best thing to do is decline the offer.
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Lodging tax returns for the estate and the deceased;
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Paying the debts;
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Publishing a notice that you intend to distribute the remaining assets to the beneficiaries;
If you’re feeling bad about not accepting, you could suggest your friend or relative engage a professional executor in the form of a Trustee Company or firm of solicitors. This will also ensure the executor outlives the person making the will.
Superannuation… Why it’s not a case of “set and forget“? Whether you are an employer who has set up a corporate superannuation fund for your employees, or an employee building your retirement nest egg through Superannuation Guarantee Contributions (SGC) into a corporate fund, you should be aware of the importance of knowing how your superannuation is growing. As a super fund member it is your responsibility to manage your contributions (over and above the SGC), regardless of whether they are being invested into a retail fund, corporate fund or your own selfmanaged super fund.
and your employer’s contributions are flowing in, you can forget about it for the rest of working life. Financial markets will change, your own financial position will change and your objectives and retirement plans will change, so it’s important you review your super plans at regular intervals. Additionally, it’s very foolish to believe that a “one size fits all” approach with no personal advice on contribution levels or types of investments will help you achieve your goals.
Super is simply another investment vehicle and as with any type of financial asset, the fundamental principles of financial planning prescribe that individual tailoring, based on your needs, objectives and personal circumstances, is paramount to ensuring you have enough money to enjoy your retirement years.
Although employers are responsible for the education of corporate super fund members, you, the member, must take responsibility for determining what your needs are and working towards meeting them. That could mean making increased contributions after a certain age to bolster your retirement savings, salary sacrificing to reduce your personal tax rate or making decisions on the investment risks you are willing to take to achieve your expected return.
It’s a recipe for disaster to think that once you have established a superannuation account
This advice might sound pretty basic, but did you know that you may attract tax
penalties by exceeding contribution limits to superannuation? Another common mistake is not getting the right advice on beneficiaries and the tax implications of leaving lump sums to non dependents. Do you currently have a binding nomination? Or a non lapsing binding nomination? These are critical issues that you must take the time to discuss with your financial planner. Superannuation is your investment in your future… individual advice and reviews are essential.
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Insuring the most important risk in small business Small businesses often referred to as micro businesses, frequently fail to allow for the risks they face.
However, one of the most important factors is the ongoing availability of the business principals.
Owners of even the smallest businesses need to carry out a comprehensive risk assessment. This should include documenting every conceivable event, including:
Key Man Insurance
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suppliers going out of business,
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major customers taking their business elsewhere,
When a small business is dependent upon the work of one, or even two people, what happens to the business in the event of their illness or death must be seriously considered. While individuals may be covered for income protection, ongoing business costs and any business loans need to be covered.
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internal and external theft,
Could this be you?
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a landlord refusing to renew a lease,
and every other aspect of the business operations.
James and Brian operated a small manufacturing business. Their personal skills and experience were highly complementary with Brian supervising manufacturing while James handled administration and marketing.
They recognised the risks of one becoming unavailable and, after taking appropriate advice, entered into an appropriate buy/sell agreement including taking out a “Key Man” insurance policy on the life of each partner. Shortly after, Brian died in a car accident. The proceeds from the policy on Brian’s life enabled James to buy Brian’s share of the business by paying out his widow. Without this, John would not have had sufficient funds available and may have been forced to sell the business. You might be a very busy business owner, but don’t get too busy to settle the important things. Talk to your adviser about the potential risks and the protection available.
Will Your Income Protection be Enough? Gary is a buyer’s advocate in real estate. He rents a city office and has built a great business negotiating commercial and residential real estate purchases for his clients. He employs Rachel as an administrator to manage the company back office. His business is thriving and after an assessment with an adviser he learned how vulnerable his family would be if he could not work. He arranged to take out income protection insurance. This cover would pay 75% of his normal income whilst he was unable to work and because he had some savings, he decided on a 90 day waiting period. It would ensure he could feed his
family, pay the mortgage and other bills and maintain a close-to-normal lifestyle as he recovered. Months later, Gary has a bike accident and received a neck injury that left him hospitalised. He undertook intensive rehabilitation over four months and used up his cash reserves. After the 90-day waiting period, the income protection policy started to make payments and everything seemed under control. When the rent account for his city office arrived and Rachel asked about her pay, he realised he would have to use his personal resources to keep the business open until he could return to work. The income protection
cover he had wasn’t enough to cover his business expenses too. The Solution Gary could have covered this risk by also purchasing a business expenses protection policy. This would have paid the ongoing expenses incurred by the business – such as rent, electricity, phone and Rachel’s salary for up to twelve months. He should also have given more thought to a 90 day wait on Income Protection and why using up your savings during the waiting period for this length of time might not be the smartest idea. Contact your advisor for more information
Do Insurance Companies pay claims? In 2006, 10 Australian Life companies paid ...... $2,031,416,442 dollars in claims In 2007, 11 Australian Life companies paid ...... $2,098,133,638 dollars in claims In 2008, 13 Australian Life companies paid ...... $3,045,333,112 in claims Breakdown of the 2008 figure: •
Life Insurance claims paid ... $1,642,888,640
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Income Protection claims paid ... $697,677,939
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Trauma claims paid ... $334,649,889
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TPD claims paid ... $370,116,664
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An average of $12.18 million per working day
Is it time to review your current cover?
Use a Trust to secretly buy your neighbours house QUESTION I want to buy a property from a person that knows me. I don’t want that person to know that I am buying his home. I have a friend lined up to make the offer. I can’t work out whether I need your Declaration of Trust or your Acknowledgement of Trust. The property is situated in South Australia. ANSWER Declaration of Trust. You use a Declaration of Trust when you are about to buy something. The Declaration of Trust is sometimes called a Bare Trust. It is one of the many types of trusts available in Australia. A Declaration of Trust is a legal structure that allows the division of the beneficial and legal ownership. It divides the asset into 2 parts: beneficial (real owner) vs legal/trustee (mere protector of the asset for the beneficial owner). The person holding the asset for your benefit is the trustee. The trustee has legal ownership only. You are the beneficiary. You have beneficial ownership. Provided you are over 18 years of age and of sound mind you boss the trustee around. You tell the trustee what to do with your asset. To the world, the asset may look as though it belongs to the trustee. However, in reality the asset is yours because you are the beneficiary. If you have a Declaration of Trust, then at any future time you can instruct the trustee to transfer the asset into your name beneficially. Of course, this is exactly what you want to do. This how you do it:
1. Sign and date the Declaration of Trust AT LEAST ONE DAY before your friend makes an offer to buy the home. (The stamp duty is nil or just a few dollars on the Declaration of Trust). 2. Your friend makes the offer in his own name. The offer is accepted. 3. You can keep up the charade and have the home registered with the local titles office in your friend’s name. However, generally you have the property put directly into your name. You use the Declaration of Trust to ensure that you don’t pay double stamp duty. You still pay the normal stamp duty, but only once. In South Australia, a Declaration of Trust is subject to ad valorem (normal) conveyance stamp duty. This is under Section 71(3) (a) (ii) of the Stamp Duty Act (SA). But you get relief (pay no stamp duty) under Section 71(13) if: •
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A document transferring property to a trustee has been stamped with ad valorem stamp duty; and There is a further document that the evidences or records the fact that your trustee took the property or interest in the property as a trustee (i.e. the “Declaration of Trust”).
In South Australia, the Declaration of Trust is called an “Adjudged Duly Stamped”. You only pay stamp duty once. You don’t pay stamp duty again when you transfer it again pursuant to the Declaration of Trust. In other words, you transfer the property to your mate the trustee. At any time, you can whip out
your Declaration of Trust show it to the Stamp Duty office and they allow you to transfer the property from your trustee to you (as beneficiary) for no stamp duty. You have to have evidence that the Declaration of Trust was in existence before your trustee offered to purchase the real estate. What evidence do I need to retain for audit purposes? You need to get: •
A copy of your stamped documents (both the conveyance of land document and the Declaration of Trust); and
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Evidence that the purchase funds came from the beneficiary and not the trustee.
Acknowledgement of Trust You use an Acknowledgement of Trust when the Trustee already owns the asset as Trustee. The Acknowledgement of Trust is merely a record the trust relationship at the date of the purchase. So how does the Acknowledgment of Trust work? For example, say you purchased property in your Super Fund, but you didn’t do a Declaration of Trust at the time. Now what? You can’t just go and build a Declaration of Trust. The Trust relationship already exists; building a Declaration of Trust is a resettlement in this instance. You will have to pay Stamp Duty and Capital Gains Tax on the transfer. What you need to do is a Deed that Acknowledges the Trust relationship existed from the date of the purchase. Brett Davies, Lawcentral.com.au
Protect Your Privates! QUESTION I have discovered a secret process that can make me a lot of money. To make this money, I need to disclose my secrets to suppliers and employees. This worries me - I can’t trust anyone but myself! What can I do to protect myself?
ANSWER Confidential information is information that is not publicly available. You might know it as “know how” or “trade secrets”. The law protects this information from misuse or improper disclosure, by anyone under an obligation to keep it secret.
To protect your information, it must: •
be confidential;
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not be publicly available (or only available to the public by unlawful means); and
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be disclosed in circumstances that indicate that it is to be treated in confidence.
Once information is publicly available, the rights to control its use or disclosure are lost. The law protects confidential information. This is regardless of whether or not a written agreement covers this information. Even so, it is prudent to sign a confidentiality agreement. This sets out the governing terms of the arrangement. Ultimately, this ensures greater
protection for you. A confidentiality agreement ensures that confidential information remains secret. You can use confidentiality agreements in almost any commercial context. They are commonly used where technically sensitive information passes between parties, before reaching a formal agreement. You can also use confidentiality agreements in transactions that are more general. These include arrangements for sale and purchase. Confidentiality provisions can appear within the body of wider agreements such as employment contracts, licenses or sale and purchase agreements. Brett Davies, lawcentral.com.au
Disclaimer The information in this newsletter is of a general nature and is provided for illustrative purposes only. It is not intended to constitute advice of any kind. The information has been prepared without taking into account the objectives, financial situation, needs or circumstances of any particular person and should not be relied upon. You should not act on the information, rather it is designed for you to contemplate whether you should obtain professional advice if an issue may be of relevance, having regard to your objectives, financial situation, needs and circumstances. Authorised representative no 282461 of AAA Financial Intelligence Ltd AFSL: 312478
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