Category Archives: Wealth Management

Topics related to the continuum of wealth management processes for all stages of life: includes investments, gearing, risk management, estate planning – and more

Investment Yield Importance

In a recent article on behalf of AMP Capital (for whom he works), Shane Oliver presented a very readable explanation of investment yield – and explained why it is an important investment consideration for the next several years, particularly for those in (or approaching) retirement.

Rather than precis the post, it has been saved and linked: 160204 AMPCap-The importance of decent investment yield-Shane Oliver

For other articles on investment yield and retirement planning, the Continuum Financial Planners Pty Ltd website has an extensive articles Library.

Trust benefits come at a cost

Do you understand the difference between holding assets personally and holding them under a legal structure?
Do you know the risks associated with the structure under which you hold your assets (or operate your business)?
If you advise clients about these matters, do you help them understand the value to them of having you attend to every detail formally?
If you advise clients about these matters, do you understand the risk to your business of working with clients who are unwilling to attend to all of their legal and constitutional obligations?

trust-sign-under-constructionFrom their emergence into the ‘popular consciousness’ in the 1960s, discretionary (family) trusts have become a popular vehicle1 for many financial and economic applications. From relatively raw beginnings of professional advisers grappling with the nature of this legal structure and seeking to apply historic principles to modern economic life, through to the modern complexity that now pervades them, discretionary trusts have provided financial benefits that range between asset protection, taxation management and the ability to distribute income and capital on a discretionary basis that cannot readily be provided by any other structure.

At their heart, trusts generally (and discretionary trusts inclusively) operate on a deed-of-trust-formsimple premise: assets are ‘settled’ on a trustee under terms established by agreement (and in all formal applications, expressed in writing) under a deed to be managed for the benefit of persons or entities identified in the agreement as beneficiaries.2

Generally speaking, the Trust Deed is very specific about the roles and responsibilities of the trustee and about the powers and authorities under which they operate. They usually provide for those terms and conditions to be able to be varied from time to time – and they invariably provide for the trust to vest at a specific point in time; or on the occurrence of a specific event.

Modern taxation practice has seen the exploitation/ application of the benefits of this flexible structure to numerous business, investment and asset-holding situations. As legislators seek to preserve fairness and equity in taxation, welfare and community well-being they have introduced ever-increasing complexity to the laws that affect the way trusts are perceived – and operated.

Now more than ever the rationale for including a trust structure in an economic unit needs to be considered very rigorously to ensure that the economic and strategic benefits warrant the costs that are associated with conducting the proposed activity under that vehicle.

What are the costs; and why are they unavoidable?

umbrella-over-wealthTo take advantage of the asset protection, the assets must be held in the proper name of the trust (usually, though not always including the name of the trustee). If this has not been consistently been the case during the life of the Trust (or at least during the period of ownership of the asset by the Trust), continuing benefits of ownership of the asset will be at risk. Costs will be incurred if the asset is then sought to be moved from the current ownership title to the correct title: those costs will probably be higher if the trustee waits until there is a claim on them before acting.

To take advantage of the taxation benefits that are available, very specific attention needs to be paid to a number of factors:

  • the Deed provisions in relation to identification of income must be specifically applied;
  • the trustee must resolve to distribute the income for each financial period in accordance with the Deed provisions (as to determination of what is to be distributed, specifically to whom what elements are to be distributed and the timing of making the determination); and
  • the taxation rules themselves need to be understood and applied correctly.

The costs involved in this part of the process arise from the need to –

  • maintain securely, copies of the original Deed together with any Deeds of Variation that have been properly drafted and executed;
  • regularly review the Deed to ensure that it has not vested; that the income for the period has been properly disclosed and brought to account; that the beneficiaries to whom distributions are proposed are correctly able to benefit from the Trust (and that they hold current Taxation File Numbers);
  • ensure trustee minutes, especially those providing for distribution of income for the period, are prepared in respect of a resolution of the trustee made before the end of the final day of the period (usually 30 June) – and that ALL resolutions by trustees are documented.

The risk to the benefits available under a Trust structure of failing to attend to all of the above issues properly and meticulously are that the taxation laws (including those established under Court decisions) may preclude the beneficiaries from their concessional ‘entitlements’; Family Courts may rule that the assets hitherto presumed to belong to a Trust in fact fall outside that structure and are divisible; and ‘equity’ Courts may find that the assets are available to personal creditors.

Are Trusts suitable for any and every circumstance?

A few pointers that need to be considered in relation to Trusts:

  • assets held in a Trust are not assets that can be devolved under a Will;
  • certain control aspects of a Trust MAY be able to be dealt with under a Will;
  • a business wishing to undertake Research & Development and seek government support for that under the taxation system will not be able to do so under  a Trust;
  • inappropriate exercise of control and dealing with Trust assets may see them deemed to be personal assets, not entitled to the benefits and protections presumed to exist; and
  • the costs of unwinding a Trust if the costs eventually are seen to outweigh their  benefits, may also prove challenging.

Your experiences ? –

Please feel free to Comment below if you have any experiences with any of the following circumstances (or indeed any of the matters raised above):-

  • Have you ever come across a situation where you were unable to find an original signed copy of a Trust Deed that you are trying to operate under/ advise on? If so, how did you overcome that situation?
  • Have you had assets stripped from you that you believed were protected under a Trust? Are you able to share with the readers what the circumstances were (anonymously of course)?
  • Do your accountant and lawyer regularly review your Trust Deed to ensure that all relevant provisions are up-to-date with current practice?
  • Can you identify which of the assets that you manage are personal as opposed to Trust assets?
1It should be kept in mind that a trust is a legal relationship, not a legal entity as such. The Australian Information Industry Association (aiia) describes a trust as “A trust is not a separate legal entity and does not enjoy limited liability, although it is common to use a company as the trustee and thereby limit the potential liability of the trustee.” See the aiia description on their website
 2The ATO carries the following definition of a Discretionary Trust: “A trust that is neither a fixed trust nor a hybrid trust and under which a person or persons benefit from income or capital of the trust upon the exercise of a discretion by a person or persons, usually the trustee.” See ATO website Glossary of terms

Life Insurance – get it: and get it right..

Apart from the fact that I was really taken by the image presented with this story, the thoughts presented in it really hit a chord with me: and holds true to the philosophy my colleagues at Continuum Financial Planners Pty Ltd (see details at apply when we are seeking to serve the best interests of our clients and potential clients.


The blog linked above ends with the following section, under the heading The Bottom Line that certainly warrants repeating:

“What is the best way to buy low cost life insurance? Getting a level premium  life insurance policy from an independent life insurance agent may be the most  secure way to go. An independent agent works with many highly rated companies,  so you can have choices.
In addition, the independent agent can help you work through which type of  policy best meets your needs. Best of all, an independent agent works for you,  not for the company, and their goal is to help you get the best affordable  policy for you.”

When you make the effort to seek the advice of an ‘independent’ agent (adviser) who can present the benefits of a range of insurers; and help you to determine what needs you actually have by way of amount of insurance protection – you can expect the above outcomes. If you select an adviser such as the firm I mention above, you will also be able to negotiate a ‘fee for advice’ package that will save you money in many instances.

The blog linked alongside the image above is worth having a read: it outlines the various pitfalls of undertaking insurance protection  without having the advice of an experienced financial planner who has your best interests as part of their working principles.

I would love to hear your experiences with life insurance: how difficult it is to get in place (with a degree of certainty that you have done the right thing); and how helpful it was to have in place when a claim event arose. Please share your experiences with me and my readers.

The superannuation conundrum in Australia: bring on a CSC

Bring on the Council of Superannuation  Custodians!

Bring it on with clear guidelines and adequate authority.

Get politicians out of the way of the retirees (whether ‘fabulously wealthy’ or otherwise) managing their nest-eggs in a transparent and stable legislative and regulatory environment.

jam jar savingSince 1992, when compulsory superannuation was introduced with the long-term goal of reducing the burden on taxpayers in funding the welfare of retirees, governments of both persuasions have made various ‘adjustments’ (1) to its structure – and the anticipated benefits.

Not all of the adjustments have caused financial detriment to the members holding their future retirement assets within the system: indeed many of them have liberalised the ability to contribute; and how the funds can be invested. The bogie in the closet is becoming the fact that there is ‘change’ happening – and the citizens for whom the system was designed are the least comfortable with change as a general rule: particularly change that is perceived to have an impact on –

  • the taxation implications of accessing their retirement benefits;
  • the taxation costs of contributing to their superannuation;
  • impediments to the accumulation of an adequate amount to fund a comfortable retirement lifestyle; and
  • uncertainty as to the stability of the legislative/ regulatory environment that dictates the operation of these accounts.

The conundrum for Australian governments is that they have:

  1. established the system with a view to relieving future pressure on the welfare system (that would have to be paid from the taxation collections of a proportionally diminishing workforce);
  2. to sacrifice a portion of the current taxation collections by way of concessional treatment of both the contributions to superannuation accounts – and to earnings on the funds accumulating in them; and
  3. when making the ‘adjustments’ they see as necessary to keep the system fair and equitable, avoid the risk of  being seen to impose a retrospective taxation system. (2)

Where the system has failed is that it started in 1992, addressing the retirement funding needs of the so-called ‘baby boomers’ – many of whom were already within ten years of entering the post-productive years of workforce participation: and no statutory requirement or provision made to address that until the disastrous ‘million dollar’ event of 2007. (3)

Australian governments have had 21 years to tweak the system: they should by now, be able to step back and allow an independent body (such as the proposed Council of Superannuation Custodians) to manage it – and to make recommendations for improvement without fear of electoral influence, or backlash.

(1) During 2007 it was estimated that there had been sufficient amendments to the Superannuation Industry Supervision (SIS) legislation, to have averaged one amendment for every working day of the previous ten years.
(2) Superannuation account holders contribute over a very long period of time, doing so on the basis of the rules for contribution – and for access in due course – understanding that certain taxation provisions will apply. They consider the changes made along the way to be retrospective because they haven’t yet been able to benefit from that access.
(3) In an attempt to encourage the late contributors, especially the self-employed who had notoriously been unable to contribute because of business working capital pressures, the Howard government allowed a once-off contribution opportunity to contribute up to a million dollars to a superannuation account; followed by some two-tiered contribution plans for the follow-up years. Some borrowed, but all who contributed saw huge losses of their capital within eighteen months as a result of the little-forecast GFC that hit during 2008.

Bonus Tax Refund effectiveness!

Just received your tax refund? Have you just found out you are due for a sizable tax refund? If you want some ideas how to use it to add value to the surprise windfall you might consider the following info.

australian cash notes of various denominations, rolled in separate bundles

Tax refund bonus?

Why do you get a tax refund? Whether you planned it or not, it is because more tax was withheld during the year than was finally required to meet your obligation to the tax man.

Was that your plan?

If not, check to see what happened with your tax return information: was it correct? If it was, there was a deduction claimed that was for a higher expense than you had expected at the start of the year; or you may have been under-employed for part of the year. If either of these cases applies to you, see what is recommended below.

If on the other hand you did work to a plan to ensure a high refund would be paid to you, ensure that you apply it in the way that you originally intended.

Some possible scenarios (and the appropriate way to deal with them) are –

  • Income protection insurance premium claimed as a deduction: use the amount ‘saved’ (in tax) to offset the ongoing cost of the premium.
  • Incurred a loss on an investment (rental property, investment portfolio etc – negative gearing) because of interest cost of a loan to invest: use the amount ‘saved’ to pay down part of the loan or some of the interest for the new year.
  • Claimed high medical expenses that resulted in a rebate: use the amount ‘saved’ to rebuild the savings depleted by paying for the medical care (or to help buy Private Health Cover if you don’t yet have that in place).
  • Requested extra tax withheld throughout the year: presumably with a plan in mind – ensure that the amount saved is allocated to the area planned (car/ holiday/ home savings account perhaps?).

a recycled jar labelled 'savings' and containing coins‘Jam-jar’ saving/ accounting like this might seem ‘old hat’ – but try it and you will be surprised at how much further your tax refund will go! You’ve lived without the money throughout the year, allocating it wisely when it comes back won’t put a strain on your pocket either.

Can you suggest other ways to ‘invest’ your tax refund effectively?

Some other tax tips –

[Self-lodged personal tax returns should be lodged with the ATO by 31 August: act quickly to avoid being fined!]

[To allocate the correct amount to each of the above can be tricky: a ‘reasonable’ way to approach this is to use the average rate of tax you paid during the year. To calculate that rate, check the notice of assessment for the item ‘Assessed tax payable’, divide that figure by the figure shown as ‘Your taxable income’ and that will give you a rate that could be say 0.215. If the refund amount was $600; and the premiums paid during the year and claimed as a tax deduction for your income protection insurance was $1,000, then the amount to set aside on this account, is $1,000 x 0.215 = $215.]

[Tax deductions are allowed for Income Protection Insurance premiums paid during the year.]

[A recently published article: Make your tax windfall work]

Teaching wealth management skills to your beneficiaries

..will they be financially literate?

Children are not sent out on to the sporting field to compete without considerable training and preparation; they are not expected to perform in orchestras without training and practice; many will not get to do either of these things – but many more will be expected to perform well in the management of their financial resources: and at a high level of performance.

The lack of financial education within all systems in Australia (and not just in the formal primary/ secondary school curricula) is appalling – and we encourage parents from all financial backgrounds to take an active role in coaching their children in ‘the ways of money’.

There are many articles written – and a general community awareness that as Australians we are an aging population; and that the consequence of this is that over the next couple of decades significant wealth will transfer from ‘the baby boomers’ to subsequent generations.

Through carefully orchestrated estate planning, provision is being made by many families to ensure that the accumulated wealth is ultimately passed on ‘to the right people, in the right amounts and at the right time’: what is not so apparent, is that little is being done to educate the ultimate beneficiaries in the appropriate management and use of the transferred wealth.

‘Children set to inherit (significant) wealth as (young) adults need knowledge and experience to make decisions that inevitably accompany such an inheritance. Many parents find themselves worried as the moment of wealth transfer approaches for a child unprepared to manage (significant) assets, and regretful they did not provide the financial education their child needed.’1

In Joline Godfrey’s article (referenced below) from which the above paragraph has been extracted, the following list suggests the skills that we need to be able to pass on to (teach) our children:

TEN FINANCIAL SKILLS EVERY CHILD NEEDS – The basic skills every child needs to master by the age of 18 include:

  1. How to save
  2. how to keep track of money
  3. how to get paid what you’re worth
  4. how to spend wisely
  5. how to talk about money
  6. how to live on a budget
  7. how to invest
  8. how to exercise an entrepreneurial spirit
  9. how to handle credit – and
  10. how to use money ‘to change the world’.
[From ‘Raising Financially Fit Kids’ by Joline Godfrey, CEO, Independent Means Inc.]

If you are serious about the financial education of Australian families, a prioritising effective usegood place to start is whilst instigating professional estate planning strategies: follow them up with family meetings at which the ultimate recipients of the accumulated wealth are able to be briefed as to why the plan has been structured as it is – and to encourage preparation for a continuation of the wealth management plans that gave rise to the investment portfolio that will form the basis of the estate.These particular skills are more or less relevant depending on the relative financial position of different families: in all cases, the core of what is listed here is relevant and will stand your children in good stead if you can achieve them. [We encourage you to read the article in full and have provided the link to it below.]

[The genesis for the above article came from a post1 from the Northern Trust blogsite: Insights on… Children and Wealth – Preparing Children for a Life of Wealth, written by Joline Godfrey, CEO, Independent Means Inc. In acknowledging the source I trust that my interpretation has not detracted from the importance of her message – which I understand and support.]

Is the future of your family secure no matter what?

[Securing the ability to service your home loan]

..are you coping?

The affordability of homes in Australia has steadily declined over recent years. Serious concerns hover over the community at large when home loan serviceability for a many Australian home-owners is under threat.

Home loan servicing (the ability to pay the home mortgage commitment – whilst maintaining ‘normal’ lifestyle and other commitments) may not seem a problem while there is a regular income flowing into the household, however the security of the family home in the event of an accident or significant change in health status of a primary income earner is not adequately protected in most Australian homes.

An AMP Press Release in July 2011 highlights the plight of many households in Australia.

A fairly sobering experience is to sit down and discuss with your partner, what events should take place should the moment arise wherein you become significantly disabled – or worse, meet an untimely death.  The step by step issues that need to be dealt with are harrowing enough: throw in the emotional turmoil; a couple of dependent children (or aged parents) – and a financial crisis scenario might start to emerge.

A sound wealth management strategy should take into account the need for access to liquidity (money) to meet bills to be paid, normal household costs, debts to service (including the mortgage) – and now added medical (and/ or funeral) costs. Waiting for a property to sell in such a situation may not provide funds quickly enough – and could leave the dilemma of your survivors needing to find an alternative place to live!

The simplest and most certain source of relatively quick access to money in these circumstances is through life insurance products. These products include Life (Death) Insurance, Total and Permanent Disability, Critical Illness and Income Protection insurance policies: and each plays a role in ensuring that the financial turmoil that follows events such as referenced above is able to be managed.

Some alternative strategies include:

  • Holding adequate monies in (emergency) reserve;
  • Ensuring that adequate assets with appropriate income stream are available; or
  • Satisfying yourself that your family can secure their own futures (whatever that might look like to you)

How would you suggest securing a family’s future in such circumstances?

Beyond the Tempest: coping with investment market turmoil

The Early Warning Alert issues: severe winds, heavy rain and damaging hail are on the way – areas to be affected are named and some safety measures accompany the alert.

What do most people do when they receive the alert?

How soon after the severe weather event is life back to normal?

Unless we are directly ‘in the line of fire’ we will probably only show passing interest; and if our specific area is to be affected, unless the storm threatens our personal assets (or family) directly we wait it out anticipating what will happen during the storm, perhaps begrudging the interruption to our busy schedule – but always ready to move on with the continuation of our business or recreational activity.

How is it that we cope so well with the natural events of storms etc, but have much greater difficulty coping with turbulent investment markets? Is  there an opportunity to hone our investment experience around the natural world?

'calling on the recovery protection'

If our approach is to rely on insurance, can we do that with our investments as well?

Over many years, financial analysts and statisticians have noted the effects, consequences and recovery periods of turbulent financial markets (speak to an experienced financial adviser to see some charts showing these periods graphically). A book that I recently read contained the following relevant piece:

“Over the 70 years up to the end of 1992, stocks provided their owners with gains of 11 percent a year, on average. In spite of all the great and minor calamities that have occurred in this century – all the thousands of reasons that the world might be coming to an end – owning stocks has continued to be twice as rewarding as owning bonds.

In this same 70 years in which stocks have outperformed the other popular alternatives, there have been 40 scary declines of 10 percent or more in the market. Of these 40 scary declines, 13 have been for 33 percent, which puts them into the category of terrifying declines, including the Mother of All Terrifying Declines, the 1929-33 sell-off.”

[Extracted from ‘Beating the Street’ by Peter Lynch – a former Investment Director at Fidelity in New York.]

After the storm passes, life continues for the majority at the same or at a heightened pace – and so it should be with your wealth management. Beyond the ‘bad times’, there are still the needs to provide a home, food, clothing and education – as well as to prepare for retirement (even if that is a long way off).

We urge you to take the following action: review your current financial position to see if it is capable of meeting your future expectations – and discuss the situation with your financial planner if it appears to be ‘coming up short’.