Financial planning can be particularly complex for high-net-worth or affluent Australians. Structuring wealth involves navigating various challenges, including tax implications, legal considerations and family dynamics. For this reason, many affluent Australians seek advice from professionals to design an optimal wealth structure for themselves and their families. These strategies often involve collaboration between a financial adviser, accountant and lawyer to address asset protection, taxation, investments and family goals comprehensively.
The key to establishing an effective wealth structure is starting with the end in mind. Take the time to define your personal and financial goals thoroughly. Adopting a ‘measure twice, cut once’ approach ensures careful consideration before committing to any strategy or structure. It’s also important to ensure the strategy has in-built flexibility to meet the changing needs of families and business owners.
A typical wealth plan for a high-net-worth family
A common holistic wealth structure for affluent families includes:
- A family investment trust,
- A Self-Managed Superannuation Fund (SMSF), and
- In recent years, an investment company.
Most families also own their principal place of residence personally. Typically, ownership is held by the non-risk partner to provide additional protection. However, if stamp duty is a consideration, there are ways to transfer the equity interest without transferring the asset.
Asset protection
This structure offers robust asset protection, especially when each element (e.g., family trust or SMSF) is overseen by a corporate trustee. It’s crucial to evaluate any loans these companies owe as part of the strategy.
SMSFs, and superannuation in general, provide excellent protection, particularly in bankruptcy scenarios.
Tax considerations
Family trusts generally distribute all profits to beneficiaries. By directing distributions to an investment company, the tax rate on these distributions can be capped at 30%, provided the cash is transferred to the company.
The placement or ownership of investments within the structure is another critical factor. Allocating assets appropriately across trusts, SMSFs, and companies can minimise tax liabilities and optimise portfolio returns. A financial adviser can guide you in making these decisions effectively.
Estate planning
One advantage of a well-structured wealth plan is the ability to pass assets owned by the family trust to beneficiaries by changing the director of the trustee company. However, one overlooked area is where family members of the trust have loaned money into the trust for investment. This is actually an estate asset and depending on what you’re looking to achieve, could remain an estate asset or could be gifted to the trust.
When structured correctly, an SMSF offers greater flexibility in managing death benefits compared to retail or industry funds. For instance, a legal representative or surviving spouse can control the payment distribution based on the deceased’s death benefit nomination. Greater flexibility in these nominations allows the surviving beneficiary more control over how benefits are allocated.
Family trusts and investment companies are not automatically included in a person’s will. This highlights the importance of consulting a lawyer to align estate planning with your wealth structure. A comprehensive estate plan generally has strategic tension between asset protection and tax efficiency. Your financial advisor combined with an estate specialist lawyer can help you arrive at the appropriate outcome to meet your wishes.
Family considerations
Many families design wealth structures that meet current needs while creating a legacy for future generations. This often involves setting up an additional family trust to own the investment company within the structure.
Such arrangements allow the family’s patriarch or matriarch to transfer control of the investment company to a child or preferred beneficiary by simply changing the director. Other assets within the family trust can remain under their control.
Careful planning of SMSF death benefit nominations is crucial, particularly in blended family situations. Without effective strategies in place, disputes or claims on the estate from third-party claimants may arise, potentially disrupting your legacy. Engaging a financial adviser can help safeguard your assets, protecting them from family and business risks while aligning with your estate planning goals.
The importance of review
A well-established wealth structure is an investment in your family’s financial future. It is worth the time and effort, as its impact will be long-lasting. Start with the end in mind and involve your circle of advisers early in the process.
If you already have a structure in place, consider reviewing it. The new year is an excellent time to reassess your plan, especially if more than five years have passed since your last review.
William Buck Wealth Advisory can help you establish a robust wealth structure tailored to your family’s needs or review your existing structure to ensure it remains fit for purpose and compliant with current legislation. Contact us today to start securing your financial future with an ideal structure that’s tax efficient, provides asset protection to at-risk parties, combined with an investment/wealth accumulation strategy that will deliver on the family’s objectives.
