Monthly Archives: February 2017

Don’t leave behind a financial mess for your family

binding-death-benefits

Husband Barney, 64 and wife Lisa, 45 decided to setup a SMSF using a corporate company as trustee.  The SMSF invested in a residential property, Australian Shares and a Managed Fund.

Barney & Lisa have 2 young children from their marriage.  Barney also has 2 adult children from a previous relationship, Jessie who is the oldest girl at 30 and Jason who is 25. Jessie is married with children of her own and Jason is young single and travelling the world.

Barney has a super benefit of $560,000 and Lisa a super benefit of $140,000.  Both have a will and named Jessie as their executor (Legal Personal Representative).
Neither Barney nor Lisa had Binding Death Benefit Nominations in their SMSF. Lisa had expressed her wishes to Barney for her super monies to go to their 2 young children, however Barney wanted the super money to go to all four of his children equally. They have also written this in their will.

Unfortunately Lisa was diagnosed with aggressive terminal cancer and died within weeks of the diagnosis. As Barney was the trustee he abided by Lisa’s wishes and paid her benefit to their 2 young children.
Lisa was removed on death as a director of the trustee company and Barney continued on as the only director and his super benefit remained in the fund.
Barney died a couple of years later from a heart attack.  As Barney has died his legal personal representative needs to step in as the single director trustee, being Jessie.

In the circumstances as there is no binding death benefit nomination and the will cannot control superannuation monies, it is up to the trustees discretion on who the benefit is paid to.
Jessie feels that she is more entitled to the money than anyone else and has decided to pay the entire benefit to herself.
Jason was very upset as he believed he was getting a quarter of the fund, the young children had no idea what was happening.

Jason engaged a solicitor and challenged the trustee’s payment of the benefits in court as his father had expressed verbally to Jason and also in his will that it was to be divided up equally.
The courts ruled that Jessie was able to pay the entire benefit to herself as there was no binding death benefit nomination, the will cannot control superannuation and the verbal expression was only a wish and not binding. The law states it is the remaining trustee’s discretion as to where the money is paid when there is no binding nomination.

Alternative Result:
If Lisa had completed a valid Binding Death Benefit Nomination (BDBN), she would not have to rely on Barney doing the right thing and paying her benefit as per her “wishes”. Barney would be legally obligated to payout as per her BDBN.
If Barney completed a valid BDBN, Jessie would not have been able to get away with paying the benefit to herself. She would be legally obligated to payout the benefit as per the BDBN in 4 equal shares, and all of the children would be provided for as per Barneys “wishes”.

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** LIMITED SEATS REMAINING – LAST DAY TO BOOK ** 

If you would like to learn how not to leave behind a financial mess for your family, then register your interest for our FREE “Is your retirement plan measuring up?” seminar, where we will discuss this topic and more.

When: Thursday 16th February, 2017
Where: Sunbury Football Club
Time: 7.30am
Cost: FREE
Register your interest NOW

Thank-you to all those people who have already booked!

General advice disclaimer – General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product
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Risk profiling, the key to a successful outcome.

Happy retired couple sitting on the bench

The year was 2006 and Gary & Janet had been married for 27 years and were contemplating retirement as they were both nearing 60, their children were now living independently and their investments were really well placed including their industry based super funds which had been providing massive returns year by year.

They had always looked after their own finances and thought they had a pretty good handle on this but, prior to retirement they thought it prudent to see a financial planner and were recommended to us.  We had a look over their situation and, on the face of it, everything seemed pretty good – wills in place, powers of attorney in place, some solid investment properties and a healthy super balance with a well reputed industry fund.  But something just didn’t feel right……… it was almost too right.

A closer inspection of the super fund showed that Gary & Janet were allocated to the default strategy within the fund which had served them very well to date as it was called a “Balanced Growth Fund” and had 75% aggressive assets and 25% defensive assets.  Heading into retirement with protecting the wealth built up Gary & Janet had no concept just how aggressive this could be.

Following an extensive discussion regarding “risk vs return” we determined that Gary and Janet were far better placed for a less aggressive structure and moved their investments to 50% aggressive and 25% defensive along with some additional planning to increase liquidity and income focus in their investments.

In the following three years after this change the Global Financial Crisis was at its peak and a number of Gary and Janet’s close friends in similar positions lost a large portion of their retirement savings which remained in aggressive superannuation portfolios.

On the other hand, Gary and Janet’s superannuation savings held up during the GFC – they still had a small loss but nothing like the losses suffered by their friends.  The combination of a portfolio suited to their risk profile together with an income rather than growth focus meant that the losses from the market were reduced and most of the losses were offset by an increased level of income.

Risk profiling was the key to this outcome.  In a world of immediacy and instant solutions, the importance of risk profiling can be quickly lost.  Returns should never be based upon a single month, single quarter or even a single year.  Returns must be viewed in the context of risk taken and risk profiling.  The S&P 500 (the largest share market in the world) has negative returns on 46% of trading days, yet the worst return over any 20 year investment term was 54% positive return.  Over any 30 year period the worst return was 854% positive return.

So the questions each investor must ask are:

  • How much of a short term loss can I sustain before I am nervous?
  • How long a period can I stay with my convictions before I start second guessing my decisions?
  • What is my primary objective from my investment mix?
  • What is the time frame for my investment period (remember the day you stop investing is either the day your money runs out or the day you die – whatever comes first)?
  • Do I even understand my own risk profile?
  • What education do I need to understand risk profile more soundly so I avoid any rash decisions?

If you are unsure about your investment portfolio, register your interest for our FREE “Is your retirement plan measuring up?” seminar, where we will discuss this topic and more.

When: Thursday 16th February 2017
Where: Sunbury Football Club
Time: 7.30am
Cost: FREE
Register your interest NOW

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General advice disclaimer – General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product

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