Are you protected? Last week we talked about protecting your wealth through having insurances in place to protect your income and assets. This week let’s take a look at other ways to protect your wealth, such as through setting up trusts and ensuring that you have a current will. Again, some people find these things difficult to talk about, but they are important if you are to make sure you are set up to be in the best financial position, or protect what you have worked for from unwanted claims.
Trusts play an important part in financial planning and protecting wealth in Australia, yet they are often poorly understood. Trusts have their roots in English law from centuries ago (there are many countries today who do not recognise trusts in their own laws – in Europe for example). People are often confused, thinking that a trust is it’s own legal entity, but in fact a trust describes a relationship that is recognised and enforced by the courts as “equitable” jurisdiction.
A simple illustration of a trust is that you may hold property in trust for the benefit of your children. That would make you a trustee and your children the legal beneficiaries of the trust (which could have more than one trustee). Under the law, trustees have a duty to act in the best interests of the beneficiaries in any trust relationship and courts will generally uphold this duty rigorously.
There are several different types of trusts established in Australia – if you contribute to a super scheme, the chances are you are a beneficiary of a trust. Trusts are often used to minimise tax obligations or to protect assets from creditors (for example ensuring that the family home can’t be pursued by creditors of a business). They may also be used to ensure that assets stay within a family (for example, protecting the asset from claims by an ex-spouse etc).
There are too many intricacies to setting up trusts to go into detail here, but what you should know is that it is strongly advised that you get financial and legal advice before entering any trust relationship. If you are to be a trustee, you must be aware of your legal obligations for doing so.
Preparing a will
This is a subject which people often prefer to avoid – after all, it does force us to face our own mortality. The fact is, having a will prepared is essential if you want to ensure that your assets are distributed to whom you choose in an amount of your choosing in the event of your death. Should you pass away without a will, this is known as dying ‘intestate’. According to Australian law, in these cases your assets are divided according to a pre-set formula and if your closest living relatives are more distant than cousins, your estate will pass to the government.
Around 45% of Australians do not have a will prepared. This is a number that really needs some attention as there are many considerations in play. For example, have you thought about a ‘living will’ to take effect in the case of you being medically incapacitated? Additionally, these days there are many different examples of blended families or de-facto relationships which could result in protracted and costly court proceedings for your family members should you not have a legal will prepared. Again, seek legal advice to ensure that your will is taken care of and your assets protected.
Understanding ways you can protect your wealth are key points in the journey to financial intelligence. Learn what you can and talk to qualified experts to determine what is best to set up for you.
I’d love to hear from you! Please leave your comments below…