Spending AND Investing – at the Same Time
Our overall wealth building philosophy for you can be summed up in one sentence:
“Have one eye on now and one eye on the future.”
This means we want you to enjoy the benefits of your hard work right now (drive a new car, enjoy regular holidays, eat out, drink that nice bottle of wine, etc) while AT THE SAME TIME putting some of your money away into good investments to provide for your future.
This is what we can help you to do, starting today!
“Pools” of Wealth
We want you to have 3 “pools” of wealth. In other words, 3 sources of funding that you can draw from when needed, at different circumstances and different occasions in your life.
Pool 1 – Cash Backup Fund
Pool 2 – Core Family Wealth
Pool 3 – Aspirational Wealth
Our wealth building advice to you will always relate back to one of these three “pools” of wealth.
What are Your Financial Goals?
Our advice is tailored to you and your family’s financial goals. What are they?
Don’t worry if you haven’t given this much thought until now. The important thing is to put your financial goals down into writing and share them with us so that we can keep you on track to achieve them.
When we meet next we will ask you for 3 initial financial goals for us to help you achieve.
Wealth Builder Recommendations for You!
Our advice to you will be “holistic” – covering not just some but all aspects of your financial life.
There are 7 key areas to Wealth Building. The sooner we can start working with you in these areas, the sooner you will be able to achieve financial freedom!
|Key Area||Why This is Important|
|1||Know your “Freedom Gap”||We’ll create for you a one page plan for your future – how much $ you will need, an estimate of how much $ you’ll have, and how to help you get to what $ you’ll need to ensure you have a beautiful financial future!|
|2||Know where you are: MyProsperity Personal Wealth Portal||To make the best decisions, you need to see your entire financial position on one page, with yesterday’s balances for all cash accounts, credit cards, loans, and investments. Using the MyProsperity Personal Wealth Portal does this for you – simply, easily, and allows you to be in full control of your future!|
|3||Debt / Loan Optimisation||You need a plan to reduce your debt over time – and debt optimisation helps you to reduce your non-tax deductible debt, and to turn whatever debt you do have into tax deductible debt if possible. Includes: Home Loan Review and Debt / Loan Optimisation advice.|
|4||Work your Superannuation||Your Superannuation account or SMSF is the key to your wealth creation. Your SMSF can borrow to purchase property investments using recent tax law changes. Includes: Superannuation Review.|
|5||Invest in a Tax Effective Manner||Imagine buying shares with no downside risk! Receive all dividends and capital growth without losing anything if your shares go down in value. Save tax at the same time, in most cases with no up-front cash required. Includes: Investment Review.|
|6||Protect your Assets||Ensures you and your family can continue to live your chosen lifestyle after a sickness / accident / death. Includes: Income Protection, Life, Trauma, Disability Insurance and Business Insurance advice.|
|7||Update your Estate Plan||Ensures that your assets are distributed tax effectively to your chosen family members if you die. Is your Will valid and up to date? Do you have a Power of Attorney? Have you planned for tax-advantaged income for your dependents after your death?|
Estate Planning involves much more than having an up to date will. It is important to ensure that your assets are distributed in the most effective manner and without adverse tax consequences for your beneficiaries.
Death may be one of the two certainties in life – the other being taxes – but another could easily be the reluctance many have towards dealing with this inevitable event. Do you know how your loved ones will be cared for if something happens to you? If the answer is “no”, then it’s time you took steps to put your affairs in order.
There are many good reasons for having an estate plan, these are just the top three:
That’s why proper estate planning, including having a will and keeping it updated, is essential.
In Australia, if you die without a valid will – known as dying ‘intestate’ – a court-appointed administrator could be charged with distributing your assets and even deciding who looks after your children if they are under 18. He or she may follow a pre-determined formula that could lead to a very different outcome to the one you wanted, which could cause delays in settling your estate. Studies show that 45 per cent of Australians don’t have a will so if you don’t have one, then it’s time to join the 55 per cent.
Drawing up a will is far more complex than merely deciding to whom you want to leave your assets to. An understanding of which assets pass into your estate is required and this is why seeking advice is important.
For instance, not all the assets you own or control can be dealt with under your will, including:
Joint tenancy and tenancy in common
Jointly owned assets or property can be held in one of two ways – either as joint tenants or as tenants in common. If an asset is held as joint tenants, on your death, the surviving joint tenant automatically acquires ownership of your share of the asset (‘rule of survivorship‘). The asset won’t form part of your estate and can’t be dealt with under your will.
If an asset is held as tenants in common, your share of the asset (i.e. 50%) will form part of your estate and can be specifically dealt with under your will.
Assets owned by a company or held in trust
If you own assets via a company or trust, your estate plan needs to address how control of that entity will be passed upon your death. This will ensure the assets of the entity will pass in accordance with your wishes.
In the case of a company, this will involve considering who will be entitled to any shares you own in the company on your death. It may also require an examination of any rights you may have under the constitution of the company to appoint directors.
In the case of a trust, you will need to examine any rights you may have under the trust deed to appoint a replacement trustee and/or appointor or to wind up the trust and direct how its assets should be disposed of. If the trustee of the trust is a company, it will also involve considering who would be entitled to any shares you own in that company.
Superannuation & Life Insurance death benefits
Assets held by a superannuation fund usually bypass the estate and are paid to a dependant spouse or children, as are life insurance benefits with binding nominations (where you specifically name your beneficiaries). If there is no nomination or the nomination is faulty, the payment of benefits may be subject to the super fund’s rules, and this may not always be what you desired.
As part of your estate plan, you also need to consider the tax implications of how your death benefit is dealt with. Lump sum payments paid to dependents (as defined under income tax laws) are tax free. Taxable components paid to non-dependents are subject to tax.
Planning for your own future needs
You should also be planning for your own future requirements. For example, there may come a time when you’re unable to make decisions for yourself because of a loss of capacity. To assist here, you need to nominate an enduring power of attorney. This trusted person is someone you appoint to make financial and property decisions on your behalf.
Nominating an enduring power of attorney before you get to the ‘loss of capacity’ stage is important as you can’t nominate one after this happens. Remember that a regular power of attorney becomes invalid upon your death or if you lose the mental capacity to make your own decisions. An enduring power of attorney, however, will allow your trusted person to act on your behalf if this happens and you are no longer able to manage your financial affairs.
You may also wish to nominate a medical power of attorney, also known as an enduring guardian, who can make medical decisions on your behalf.
A testamentary trust is a trust established by someone’s will. It comes into existence only when that person dies. Including a testamentary trust in your will can be useful for making tax effective distributions to beneficiaries under the age of 18, caring for children or a dependent who is incapacitated, and preventing beneficiaries from inappropriately spending their inheritance.
Tax effective estate planning
The disposal of assets in accordance with your will may have tax consequences, including CGT, that you should consider when drafting your will and creating your estate plan. There are many strategies you can use to help make your estate plan as tax effective as possible for your dependents and beneficiaries.
Some of these strategies include:
There are many tax time bombs found in estate planning. For instance, an asset you leave one child may be subject to capital gains tax while an asset left to another may be exempt. This could result in each child receiving very different inheritances when you thought you were leaving them equal shares. Also, the tax payable on some benefits may depend on each beneficiary’s personal circumstances.
Asset ownership structures:
Different structures offer different benefits. For example, a testamentary trust comes into effect at the time of your death and can help protect your assets against any claims that arise if your children become divorced or bankrupt. They can also be used to reduce tax and provide for young or disabled children. Other structures include companies, self-managed super funds and family trusts.
You may want to give additional direction to those you have given powers of attorney. For example, an anticipatory direction lets you list what medical treatment you want or don’t want, if you can no longer make those decisions yourself. Similarly, an advance healthcare directive (or living will) details the type and extent of healthcare you wish to receive. You may also want to spell out your desires regarding your funeral arrangements, rather than have your family second guess what you would have wanted.
Estate planning can be complicated, but it’s important to do things properly so that your family can avoid any potential legal issues – especially as regulations change over time.
At a time when your loved ones are coping with a loss, don’t leave them with additional hurdles to overcome.
Our Inspire financial planning partners can help you investigate which strategies may be appropriate for your personal situation.