Is your family home at risk? The one mistake many business owners make
As a business owner, there are plenty of things you need to manage, and two of the most important of these are assets and risks.
In other words, building your wealth and protecting your wealth.
There’s no point building a lot of wealth if the way you have things structured behind the scenes means that someone could take your assets away from you.
Sadly, many business owners are in precisely this predicament, without knowing it!
Following are some crucial concepts that, if you as a business owner don’t understand them and put protective measures in place, your family home (and all personal assets of you and your family) are at risk of being lost if someone decided to take legal action against your business.
Consider these facts...
- Your business faces unpredictable risks through interaction with employees, customers/clients and creditors.
- This means there is potential to be sued by a variety of parties. Where there are agreements in place, sometimes disagreements later result. This is life. It makes sense to accept that, and plan and protect yourself, rather than hope it never happens.
- Litigation, sadly, is increasing each year, largely driven by lawyers offering ‘no win, no fee’ services.
- This encourages people to ‘have a go at you’ through legal action. They have nothing to lose, after all.
- This means you need to ‘build a wall’ between your business risks and your personal assets otherwise you risk losing it all.
- This ‘wall’ protects you and your family from losing assets such as your house or personal investments, if your business was to be sued.
- The wall is created by clever use of companies, trusts and also deciding who within a married couple, for example, should and should not be a Director of each company. This is a key point. One seemingly simple mistake in this area can cost a family their house.
- The standard type of will puts your family’s assets at risk, because if the person who dies holds the family’s personal assets in their name, ownership of these assets will revert to the person who through their Directorships in the business, is at a much higher risk of being sued.
This presents significant risk.
So what can you do about it?
If you haven’t looked at your asset protection structure in the past 12 months, you need to make that a priority.
Then this should be reviewed annually.
Why?
As your life changes, your asset protection strategies—your ‘wall’—needs to be checked that it is still appropriate.
As part of this process we also ensure your wills and estate planning are in order. Remember, the standard type of will can bring down your wall.
In addition to wills, there are other important documents to have in order such as an enduring power of attorney. This is a legal document that can give someone else—the person you choose—the power to make personal or financial decisions on your behalf.
You see, it is far more common for someone to become incapacitated through accident or trauma such as stroke, than it is to suddenly die. If this happens to you, you may not be able to communicate your wishes and make decisions when you need to.
The consequences of this are dire and tragic.
Why?
It’s all about choices and about ensuring you protect your family and your assets. Without sound asset protection and effective wills and estate planning in place, the legacy you have been working so hard to build may not end up in the hands of the people you intend.
The potential tragic nature of this type of scenario is why we feel so passionate about asset protection and estate planning ... because it’s all about protecting the families we serve.
If you’re anything like our many other clients who have these structures in place, we think you’ll find the costs of ‘building these walls’, so to speak, relatively minor compared to the protection they give you and your family.
Your next step ... Call us on 08 6336 6200 or email us on nparker@ascentwa.com.au to make a time to meet and discuss your options. We’ll then outline the costs so you know exactly what lies ahead.
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One of the most powerful decisions you can make with your superannuation is whether to run your own self-managed super fund (SMSF) and whether to invest in property through it. Most people know it's possible to use super to buy property. Far fewer know how to do it well. The following seven tips are designed to help you make the right decisions. 1. You Can Borrow Money to Purchase Property in Superannuation. Don't have enough in your SMSF to buy an investment property outright? Since 2008, superannuation held in a self-managed super fund can be used to borrow money for property purchase. This is done through a 'limited recourse loan' using a Bare Trust as the Custodian entity. You can't borrow the total value of the property—typically it's up to 80% for residential properties and 60% for commercial properties, with the required deposit held in the SMSF as security. The SMSF then makes the loan repayments, with rental income received by the fund and property expenses paid by the fund. Importantly, if there is a default on the loan, your other assets in the SMSF are generally protected from standard debt recovery and bankruptcy proceedings. The lender only has recourse to the property itself. Upon completion of the loan repayment, ownership of the property transfers legally to the SMSF. 2. Follow These 8 Steps to Set Up Your SMSF Setting up an SMSF properly can be a complex process. It’s best to set up an SMSF with the assistance of a qualified superannuation advisor, like us! We can assist with both the initial setup and the ongoing management of your fund. There are eight core steps to SMSF set up: Select the appropriate structure and name Sign the trust deed that covers how your SMSF is set up and run (it can have up to four members) Establish a trust for the SMSF by investing assets into the fund Register your SMSF with the ATO Set up a separate bank account for your fund Submit your tax file number (and those of any other trustees) Obtain an electronic service address to receive employer contributions into your fund (if applicable) Roll over funds from your existing superannuation account into your SMSF 3. Keep a Liquidity Buffer If you're buying property through superannuation, make sure you plan to keep a liquidity buffer of cash and/or shares in your fund. Lenders will check for this before lending to you—it should be at least 10% of the value you intend to borrow. But beyond satisfying the bank, it's simply good risk management. Property is an illiquid asset. Having accessible funds in the SMSF means you're not caught short if repairs are needed, the property sits vacant, or an unexpected expense arises. Because superannuation is central to most Australians' retirement security, the government has carefully regulated what can and can't be done with it. They don't want people gambling their retirement away on poor investments or incorrectly using their superannuation fund. 4. Use the Rental Income to Repay Your Loan You cannot live in the property you purchase through your SMSF until after retirement. Most people purchase an investment property and use the rental income generated to repay the loan—which makes excellent financial sense. The key is selecting a property that rents easily and delivers a strong rental return. Your purchasing criteria may look a little different to buying a home you'd live in yourself. For example, proximity to public transport, local amenities, and average rental rates in the area matter more than personal preference. 5. Get It Right and Enjoy Significant Tax Efficiencies One of the most compelling reasons to invest in property through superannuation is the tax efficiency on offer. These benefits can significantly improve the long-term return of a property investment compared to holding it in your own name. Key tax benefits include: No capital gains tax or tax no yearly investment earnings if under super caps. Salary sacrifice advantages if you're sacrificing salary payments into super, loan repayments are effectively tax deductible. Capped tax on investment income—the maximum rate of tax on income after expenses is 15%. Any capital gains on investments held for 12 months or more, is taxed at 10%. Standard investors outside super can pay up to 47%. 6. Follow the Same Due Diligence Rules as Any Property Purchase Buying through superannuation doesn't mean relaxing your standards. If anything, the rules governing SMSFs mean you need to be more rigorous, not less. Property is likely one of the most significant financial decisions of your life. Research, not emotion, should drive your choices. The same rules apply whether you're buying in or out of super: Visit and compare multiple properties Know the values of similar properties in the same area Get all property checks performed by the right professionals Shop around for the right loan structure and lender Don't abandon good investor habits just because the structure is different. 7. Always Get Quality Professional Advice Nothing comes without risk—but the right advice significantly mitigates it. The key is understanding what you're getting yourself into: making informed decisions based on accurate data; keeping a diversified superannuation portfolio that doesn't place all your eggs in one basket; and not underestimating how complex buying property in superannuation can be. Sound Simple? It’s all in the details. If the above tips have made it sound straightforward, know that the detail is where the complexity lives. Getting professional advice from the start helps ensure you make the best possible decisions for your future. When selected according to rigorous property-purchasing criteria, property can be an excellent way to grow your superannuation and increase your chances of building a retirement fund that supports the lifestyle you want. Ready to Explore Property in Your SMSF? Whether you'd like to discuss whether an SMSF is right for you or need help setting one up, reach out to Ascent Accountants . If you want assistance managing the property within your fund, contact the Ascent Property Co team .
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