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The Guide to Safeguarding Family Wealth: Part Two

I. INTRODUCTION

The creation of Family Wealth demands a significant investment of time, hard work, and emotional dedication. However, the susceptibility of this wealth to expensive legal disputes, regulatory challenges, and economic uncertainties poses a constant threat. It is not uncommon for the estate of a deceased individual, valued at $1 million, to face challenges, resulting in legal fees exceeding $200,000 and prolonged litigation. The magnitude of fees increases with the size of the estate. Individuals engaged in various professions, such as doctors, property developers, or hairstylists, may find themselves exposed to extended and costly lawsuits.


Yet, this undesirable outcome can be prevented.


II. FAMILY WEALTH – IS YOURS PROTECTED?

Five potential threats loom over family wealth, each representing a ticking time bomb capable of jeopardizing both financial prosperity and well-being.


1. LITIGATION

In the current era, individuals can face lawsuits from a myriad of sources, including employees, children, spouses, neighbors, government bodies, councils, tenants, and regulators. Australia, producing the highest number of law students per capita globally, boasts a robust legal industry generating over $23 billion in annual revenue. Any asset held in one's name is vulnerable during litigation, with the primary concern not only being the legal battle itself but the prolonged duration, stress, and escalating legal expenses.


2. INCAPACITY

Mental incapacity renders a person unfit to serve as a trustee or company director. Unexpected medical events, as exemplified by the COVID pandemic, can incapacitate individuals, leaving critical roles vacant. Without strategic preparations, businesses, trusts, super funds, and investments face uncertainty and potential peril in the absence of leadership.


3. BANKRUPTCY

The financial fallout from events like COVID can significantly impact the income and stability of business owners and professionals. As insolvency becomes a looming threat, family wealth, encompassing assets, investments, companies, trusts, and super funds, remains exposed to potential insolvency or bankruptcy.


4. DEATH

Contrary to common expectations, having a Will does not guarantee the seamless distribution of personal assets. Disaffected parties can contest estates in every Australian state, leading to prolonged and costly court battles. Family assets, including homes, investments, and superannuation, are susceptible to litigation following the death of a key person, director, or trustee.


5.FAMILY LAW

Many are unaware that a two-year de facto relationship grants both parties full recourse against each other's property in the event of a breakdown, as per the Family Law Act in Australia. Actions such as giving money to adult children, providing inheritances, or holding unpaid present entitlements in a family trust can complicate matters in relationship breakdowns or divorces, potentially leading to the intervention of the Family Law Court.


III. SOLUTION – THE PROTECTOR

Legal and estate planning experts, Abbott & Mourly through the WE Love group, have developed "The Protector," a comprehensive family wealth protection package. This package not only ensures asset protection but also safeguards assets for the benefit of chosen beneficiaries within the family lineage, thereby securing assets for future generations.

Let’s go through each of the steps of The Protector so you understand why and how it works.


Establish a Family Protection Trust

A properly structured trust can effectively protect assets, businesses, investments, and family wealth. "The Protector" utilizes a specialized Trust for the beneficiaries of your family lineage, including yourself and your spouse. The key figure in the Trust is the Family Protection Appointor, who controls beneficiary and trustee appointments. Succession planning is crucial, and building a line of Family Protection Appointors ensures ongoing control, even in the face of legal challenges, incapacity, or death.


The incorporation of a corporate trustee adds longevity to the trust structure, securing assets and facilitating an orderly transition between Family Protection Appointors.


Calculate Family Wealth

The Australian tax system offers advantages for holding certain assets in one's name. However, the exposure of assets held personally necessitates their transfer to the Family Protection Trust, ensuring protection. The valuation of all assets in one's legal name determines net equity, considering loans or borrowings.


Gift Net Wealth to the Family Protection Trust

Gifting the determined net equity to the Family Protection Trust involves a promissory note, reducing personal wealth to zero or a nominal figure. This step provides the necessary protection.


Loan to Asset Owners

The Trustee of the Family Protection Trust can lend the corresponding net equity back to the legal title holders of the assets, allowing continued use. Security is crucial, with a registered mortgage on real estate and Personal Property Securities Register for other assets.


Securing the Loan

Ensuring the loan's security involves registering mortgages on real estate and utilizing the Personal Property Securities Register for personal property.


Special use of Call Option

To account for increased asset values over time, a call option agreement between the Trustee and the owner allows the Trustee to acquire assets at market value, providing flexibility and securing increased value for the trust.


IV. What to do Next?

While "The Protector" offers a crucial solution to the Big Five exposures, it is essential to take immediate action. Complete the attached Data Capture, send it back for a review, and set up an appointment with Abbott & Mourly. A fixed cost quote will be provided based on requirements, with no out-of-pocket costs for the initial review and appointment.


Don't delay; secure your family wealth now.







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