Navigating the Challenges and Moving Forward

Divorce and your business. It can be a difficult and emotionally challenging process, and when a small business is involved, it adds another layer of complexity. A failed marriage may not directly cause a business to fail; it can significantly impact the business. Let’s explore where husband and wife work daily together in the business and where the wheels fall of the marriage.

The intersection of personal and professional lives can create unique challenges for couples who decide to end their marriage while still running a business together.

According to the website Marriage.com, it has been estimated by divorce lawyers that the divorce rate among entrepreneurs is approximately five to ten per cent higher than the average rate.

This means that, with the divorce rate in the USA being around 38%, the divorce rate for entrepreneurs could range from 43% to 48%. No doubt, it is similar trends in Australia as around the world.

Understanding the Emotional Challenges as the matrimonial dispute heats up!

Divorce is an emotionally charged event, and when business ownership is involved, the stakes can feel even higher. The tensions between the former spouses who continue to work together at the company can also create challenges.

The end of a personal relationship can significantly impact the dynamics of the business, affecting decision-making, communication, and overall productivity. It’s crucial for both parties to recognise and address the emotional challenges that may arise during this process.

One partner may often leverage the situation to cause employee unrest or divert funds to their own advantage.

Communication Breakdown

One common issue that arises during divorce is a breakdown in communication.

As emotions run high, it can become increasingly difficult for divorcing spouses to communicate and make decisions together effectively. This breakdown in communication can directly impact the business’s day-to-day operations, leading to delays, misunderstandings, and potential financial losses.

Conflicting Interests when it comes to divorce and your business

Another emotional challenge is the conflicting interests of the divorcing spouses. While they may have shared goals and visions for the business before the divorce, their individual priorities may shift as they navigate the separation process.  One partner may want out. This misalignment of interests can create tension and disagreements, making it challenging to move forward and make decisions that are in the business’s best interest.

As with any business dispute, a strategy needs to be carefully considered. We can assist here as we specialise in helping people exit from their business in times of dispute to protect their interests. Sometimes, you may feel you are being forced out by an aggressive partner.

Legal Considerations for Divorcing Business Owners

When going through a divorce and your business as a small business owner, it’s essential to understand the legal implications. Therefore, you need to consider the best course of action for the business. Ensure you have a good lawyer who understands how business works and divorce implications.

Business Valuation helps set an independent value.

One of the first steps in the divorce process is determining the value of the business. This involves assessing the business’s assets, liabilities, and overall financial health. Hiring a professional business valuator, independent of both partners, can help ensure an accurate assessment and avoid disputes over the value of the business.

In some cases, it is logical that one partner continues and the other is bought out. This may be an easy discussion or an emotional one where one partner feels like they are forced to leave.

Property Division

The division of assets is critical to any divorce settlement, and the business is no exception. There are several approaches to property division, including selling the business and dividing the proceeds, one spouse buying out the other’s share, or continuing to co-own and operate the business together. Interestingly, of late, we have seen many clients romantically separate but still come together for the business. An improved relationship helps rebuild the years of bitterness that prevented the business from growing in the past.

Shareholder Agreements and Operating Agreements

Reviewing any existing shareholder or operating agreements is essential if the business is co-owned with other partners or shareholders; this is especially critical if outside owners are also involved. These legal documents may outline the process for transferring ownership in the event of a divorce and provide guidelines for resolving disputes. Therfore it’s imperative to seek the advice of a good lawyer here.

Moving forward after divorce and your Business!

Create strategies for Success

A collaborative approach can be particularly valuable for couples who choose to continue co-owning and operating the business post-divorce. By establishing clear roles, responsibilities, and decision-making processes, the former spouses can maintain a productive working relationship while keeping personal issues separate from business operations.

In some cases, once the initial anger, separation and legal matters are dealt with, there can be a sense of calmness. Former couples then acquaint each other and use the business as a common neutral ground to continue moving forward.

It can sometimes improve the business as matters of personality and indecision have been resolved, and a new journey begins.

These are crucial considerations, as the fate of the business can be impacted by the decisions made during the divorce proceedings. In any dispute of divorce and your business, what strategies will each partner employ to gain an advantage? How will a marital dispute affect the division of the business assets? These are all important factors to consider when navigating a divorce involving a business.

Once the divorce process is complete, developing a plan for moving forward and ensuring the business’s long-term success is essential. Here are some strategies to consider:

Redefine Roles and Boundaries post-divorce and your business.

After a divorce, redefining roles and boundaries within the business is crucial. Clearly establishing each party’s responsibilities, decision-making authority, and areas of focus can help minimise conflicts and ensure a smooth transition. This also includes parity of reward vs effort and how major decisions will be made.

Develop a Succession Plan

A succession plan is essential if one spouse decides to leave the business or circumstances change. This plan outlines how ownership and management will be transferred and ensures business continuity. This can assist in the divorce settlement negotiations.

In many cases, there may be a plan that will exit the business, and a value-building plan is implemented to plan for the sale of the business. In any divorce and your business, distractions and emotions can lead to further hemorrhaging of profits. Once a plan is devised, stick to the narrative.

Navigating the complexities of divorce and your business ownership requires professional guidance. Working with experienced attorneys, accountants, and business advisors can provide valuable insights and help you make informed decisions that align with your personal and professional goals.

Divorce and small business ownership present unique challenges that require careful consideration and planning. Divorcing couples can navigate the process more effectively by addressing the emotional issues, understanding the legal implications, and adopting a collaborative approach. Moving forward post-divorce requires redefining roles, developing a succession plan, and seeking professional guidance. With the right strategies in place, it is possible to separate personal and professional lives while ensuring the business’s continued success.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered legal or financial advice. It is recommended to consult with qualified professionals for personalised guidance based on your specific situation. Please reach out for a confidential discussion about your personal situation.

SMSF for Property development undertaken by an SMSF can be undertaken. We however strongly recommend seeking advice.
ATO has issued a warning about relates to the use of SMSFs to invest in property development in a manner that inflates the profits earned by the SMFSs when compared to the capital the SMSF commits to the venture.

Can my SMSF invest in a property development?

An SMSF can as part of its investment strategy invest in property ventures. This is provided the investments are entered into on a genuine arm’s-length basis. As trustees, you should document your strategy including a risk analysis of the project.

If investments are entered into with related parties, even though on an arm’s-length basis, care still needs to be taken. Keep reading to understand what you should do!

A scheme that was identified by the ATO, an arm’s length third party contracts with a company related to SMSFs to build several units or apartments ie a property development. Those who control the SMSFs provide services to the company (which they control) and charge low fees to that company. Also, loan capital is provided to the development company at a low or no interest rate.

Inflated profits warning signs

In this scheme, the development company earns inflated profits. These profits (after the company pays tax on the profits) are then paid as fully franked dividends up a chain of companies to the SMSFs.

The development company in this case will have paid tax at a rate of 30% on the profits earned. When the profits reach the SMSF as fully franked dividends, the tax paid by the company is refunded to the extent of the SMSF only paying 15% of the profits. Hence reduced tax liability

The ATO would state that this means the SMSF contravenes the superannuation and tax laws. Furthermore, this is because the SMSF is earning “non-arms length income” (NALI). NALI earned by a superannuation fund is taxed at 45%. The SMSF may also be treated as a non-complying fund because it may have breached the “sole purpose” test. This means it will have lost all of its tax-concessional status.

Tips worth noting before using your SMSF for property development:

Financing and Borrowing

• Limited Recourse Borrowing Arrangements (LRBA): While SMSFs can borrow to invest under LRBAs, there are strict rules about borrowing, especially when it comes to property development.
• Personal Guarantees: Trustees should be cautious about providing personal guarantees for loans, as this can risk personal assets.

Development and Construction

Building the development and Contractor Selection: Engaging contractors for property development must be done at arm’s length,. This means competitive pricing and no preferential treatment to related parties. The building also needs good Project Management: Trustees need to actively manage the project or engage professional project managers to ensure the development is completed on time and within budget.

Tax Considerations and Implications for SMSF Property

• Capital Gains Tax (CGT): SMSFs can benefit from reduced CGT rates on investment properties held for more than 12 months.
• Income Tax: Rental income and any profits from the sale of developed property are subject to income tax at concessional rates within the SMSF.

Exit Strategy

While an exit strategy requires a sale of property Liquidity and Exit is important considerations. Before embarking on a property development venture, consider how the SMSF will exit the investment. Property can be difficult to sell quickly, which may impact the fund’s liquidity. Especially if the member is of old age or needs to fund a pension

Gartly Advisory specializes in helping both clients establish and operate an SMSF and also those who undertake property development.

Superannuation Death benefits are an estate planning matter that is a crucial aspect of financial planning.
It is essential to consider what happens to superannuation upon death.
Understanding the intricate system of superannuation death benefits is essential for effective financial planning and ensuring that your loved ones are taken care of.

When a superannuation member dies, the remaining balance in their super fund and any associated insurance payouts are generally paid out as a superannuation death benefit. This benefit is intended to provide financial support to the deceased member’s beneficiaries, including their spouse or partner, children, or other dependents.

However, the distribution of these benefits is subject to various regulations and considerations, making it a complex area of financial management.
It’s important to note that superannuation death benefits are not automatically distributed according to a will.Firt thing to remember is that super funds typically provide a set of criteria for determining who is eligible to receive the benefits.

In some cases, the Fund Trustee may have discretionary power to allocate the benefit to the most appropriate beneficiaries, considering the deceased member’s relationships and financial dependents.
This is an estate planning opportunity or danger for those operating an SMSF.

With this purpose in mind, everyone should familiarise themselves with superannuation death benefits rules and options. The result is to ensure that your wishes are carried out, and their loved ones are well provided. This involves nominating beneficiaries, understanding the tax implications, and integrating superannuation benefits into estate planning strategies.

Who Receives the Superannuation Death Benefit?

A superannuation death benefit distribution is typically prioritised according to specific rules and regulations. A death benefit is first paid to the deceased member’s dependents. These include their spouse or partner, children, and any individuals financially dependent on the dead at the time of their death. If there are no eligible dependents, the benefit may be paid to the deceased member’s estate.

It’s worth noting that the definition of dependents can vary between superannuation funds and may include both financial and interdependency criteria. Understanding these distinctions is crucial for ensuring the benefit is allocated appropriately and by the deceased member’s intentions. Furthermore, the rules governing who can receive a superannuation death benefit may change depending on the specific circumstances, such as the age and marital status of the deceased member.

In cases where the deceased member has not made a binding death benefit nomination, the fund trustee may exercise discretion in determining the benefit distribution. This underscores the importance of proactive planning and communication to ensure the benefit is directed to the intended beneficiaries. By understanding the eligibility criteria and potential beneficiaries, individuals can make informed decisions regarding the nomination of superannuation death benefit recipients.

Taxation of Superannuation Death Benefits

Taxing superannuation death benefits is a critical consideration that can significantly impact the ultimate value of the beneficiaries’ benefits. The tax treatment of these benefits is influenced by several factors, including the relationship of the beneficiary to the deceased member, the components of the superannuation benefit, and the age of the dead at the time of their passing.
Generally, superannuation death benefits paid to a deceased member’s dependents are tax-free.

This includes benefits paid to the deceased member’s spouse, children, and any individuals who were financially dependent on the deceased. However, the tax treatment may differ if the benefit is paid to a non-dependent, such as an adult child who was not financially dependent on the deceased.
In such cases, the tax payable on the superannuation death benefit is influenced by the components of the benefit, which typically include taxable and tax-free elements. The taxable component of the benefit is subject to tax at a beneficiary’s marginal tax rate, while the tax-free component is not subject to tax. Understanding these tax implications is crucial for both the deceased member and their beneficiaries, as it can inform decisions regarding the nomination of beneficiaries and the potential tax consequences of the benefit distribution.

Furthermore, individuals may explore strategies to minimise the tax impact of superannuation death benefits, such as utilising binding death benefit nominations or implementing effective estate planning measures. By considering the tax implications in advance, individuals can optimise the financial outcomes for their beneficiaries and minimise potential tax liabilities.

How to Nominate Beneficiaries for Your Superannuation

Nominating beneficiaries for your superannuation is a fundamental step in ensuring that your superannuation death benefit is distributed according to your wishes. Most superannuation funds offer members the option to make binding or non-binding death benefit nominations, providing a mechanism for specifying who should receive their superannuation benefit in the event of their death.

A binding death benefit nomination legally compels the superannuation fund trustee to distribute the benefit to the nominated beneficiaries, provided they meet the eligibility criteria. This nomination must be kept current and aligned with the fund’s requirements to remain valid. In contrast, a non-binding nomination serves as a guide for the trustee but does not impose a legal obligation to follow the member’s wishes.

Individuals need to review and update their death benefit nominations regularly, particularly in the event of significant life changes such as marriage, divorce, or the birth of children. By keeping these nominations current, individuals can ensure that their superannuation is directed to the intended recipients and aligns with their evolving family and financial circumstances.

Moreover, considering the potential tax implications of superannuation death benefits, individuals may seek professional advice to structure their nominations tax-efficiently and maximise the financial outcomes for their beneficiaries. By proactively nominating beneficiaries and staying informed about the nomination options available, individuals can exercise greater control over the fate of their superannuation benefits and provide for their loved ones according to their wishes.

Claiming the Superannuation Death Benefit

Once a superannuation account holder has passed away, claiming the superannuation death benefit begins.

This involves navigating the administrative procedures outlined by the relevant superannuation fund, which may include submitting necessary documentation and fulfilling specific requirements to facilitate the benefit payment.

Step one involves notifying the deceased member’s superannuation fund of their passing and initiating the process of claiming the death benefit. This may entail providing the fund with a certified copy of the deceased member’s death certificate and completing any required claim forms. Additionally, the fund may request information about the deceased member’s beneficiaries and their relationship to the deceased, mainly if a binding death benefit nomination is in place.

The beneficiaries must engage with the superannuation fund promptly and comply with any documentation requests to expedite the processing of the death benefit claim. Delays in the submission of required information or discrepancies in the provided details could prolong the benefit payment process, potentially impacting the financial stability of the deceased member’s dependents.

During this period, beneficiaries may also seek professional guidance to ensure they understand the steps in claiming the superannuation death benefit and are equipped to navigate any potential complexities. By actively participating in the claiming process and communicating effectively with the superannuation fund, beneficiaries can facilitate the efficient distribution of the benefit and mitigate any administrative hurdles.

Options for Receiving the Superannuation Death Benefit

Upon the approval and processing of a superannuation death benefit claim, beneficiaries are presented with several options for receiving the benefit. The payment method can significantly influence the tax treatment and long-term financial implications for the beneficiaries, making it a critical decision that warrants careful consideration.

One standard option is to receive the death benefit as a lump sum payment. This provides the beneficiaries immediate access to the total benefit amount, allowing them to utilise the funds according to their financial needs and priorities. However, it’s essential to recognise that receiving the benefit as a lump sum may result in tax implications, particularly for non-dependant beneficiaries and the taxable component of the benefit.

Alternatively, beneficiaries may opt to receive the superannuation death benefit as a pension or income stream, providing a regular and potentially tax-effective source of income over an extended period. This can be particularly advantageous for dependant beneficiaries who seek ongoing financial support and prefer to manage the benefit as a long-term income stream.

By evaluating the available options and their associated considerations, beneficiaries can make choices that align with their preferences.

Superannuation Death Benefit and Estate Planning

Integrating superannuation death benefits into estate planning is critical to comprehensive financial management. By strategically aligning superannuation benefits with estate planning strategies, individuals can exert greater control over the distribution of their assets and ensure that their loved ones are well provided for after their passing.

One key consideration in estate planning is the interaction between superannuation death benefits and your will. While superannuation benefits do not automatically form part of an individual’s estate, they can be directed to specific beneficiaries through binding death benefit nominations, bypassing the probate process and providing expedited access to the benefits.
Furthermore, individuals may explore the use of testamentary trusts to manage the distribution of their superannuation death benefits. Testamentary trusts can offer increased flexibility, asset protection, and potential tax advantages for the beneficiaries, making them a valuable tool in structuring the inheritance of superannuation benefits.

In addition, those with self-managed superannuation funds (SMSFs) may consider including a comprehensive succession plan within their fund’s trust deed.

Ultimately, by integrating superannuation death benefits into their broader estate planning framework, individuals can exert more significant influence over the allocation of their assets and provide their beneficiaries with a secure and efficient inheritance process.

Seeking Professional Advice on Superannuation and Death Benefits

In conclusion, the fate of superannuation after death is a crucial aspect of financial planning that warrants careful consideration and proactive management. Understanding the intricacies of superannuation death benefits, including the eligibility criteria, tax implications, and distribution options, is essential for ensuring that the benefits are directed to the intended recipients and aligned with the deceased member’s wishes.
Individuals should prioritise the nomination of beneficiaries for their superannuation, regularly review and update their nominations, and integrate superannuation benefits into their broader estate planning strategies. Seeking professional advice from financial advisors, estate planning experts, and taxation specialists can provide invaluable support in navigating the complexities of superannuation death benefits and optimising the economic outcomes for the beneficiaries.

By proactively engaging with these considerations and seeking professional guidance, individuals can secure the financial well-being of their loved ones and ensure that their superannuation benefits serve as a lasting and impactful legacy. Empowered with the knowledge and resources to navigate the labyrinth of superannuation after death, individuals can approach this critical aspect of financial planning with confidence and clarity, ultimately shaping a secure future for their be

Estate planning and SMSF can play a large role when it comes to Estate planning, which is an often-overlooked aspect of financial planning when executing your Will, superannuation, and wishes.

Estate planning determines how your assets will be distributed once you pass away. However, estate planning can be complicated and overwhelming, which is why Self-Managed Super Funds (SMSFs) have become popular.

SMSFs are a powerful tool for estate planning and managing your retirement savings.
Whether you’re new to estate planning or simply looking for a more efficient way to manage your assets, leveraging the power of SMSF can help you achieve your financial goals and ensure that your assets are distributed according to your wishes.

Understanding SMSF and its benefits for estate planning

SMSF is a type of super fund that is managed by its members. It provides more flexibility and control over your retirement savings compared to the public APRA super funds. SMSFs can invest in a wide range of assets, including property, shares, and managed funds. This makes them a popular choice for those who want to take a more active role in managing their retirement savings and buy property direct.

Estate planning and SMSF provide benefits for estate planning that should not be overlooked. Unlike other super funds, SMSF members have more control over how their assets are distributed after their passing. With an SMSF, you can nominate who receives your benefits and how they are distributed. This means your assets can be distributed according to your wishes, which can provide peace of mind for you.

SMSF vs. other estate planning options

An SMSF forms part of a structure to manage your estate planning wishes. This, combined with your wills, a family trust and other measures, ensure the correct outcome.

SMSFs also provide tax benefits for estate planning. For example, assets held in an SMSF are not subject to capital gains tax (CGT) when they are sold after the member’s death. This can provide significant tax savings for your beneficiaries.

Creating an estate plan using SMSF

Creating an estate plan using SMSF involves several steps.

We first must look at the Fund’s assets and the members’ wishes. Look at the age and composition of your SMSF . Are there others in the Fund that may continue after your death?

Those in pension mode may choose to allow the Death Benefits to be rolled over to a remaining dependent in the fund via the use of a reversionary pension. The advantage to this is that the benefit does need to come out of Super.

Other members may choose to prepare a binding death benefit nomination (BDBN). This legal document specifies who will receive your benefits and how they will be distributed after your passing.
When creating a BDBN, it’s important to consider the needs of your beneficiaries. For example, you may want to provide for your spouse’s retirement needs or ensure that your children receive an education. You should also consider the tax implications of your estate plan and how they will affect your beneficiaries.
Once you have created a BDBN, you should review it regularly to ensure it still reflects your wishes. You should also keep your beneficiaries informed of your estate plan so they know what to expect after your passing.

Understanding who is a dependent for Superannuation purposes

Under the Superannuation Industry (Supervision) Act 1993 (SIS), benefits may be paid to one or more of the member’s dependants or their legal personal representative (LPR), i.e. the estate, subject to the fund’s governing rules.(check Trust Deed)

A dependant for these purposes (known as an SIS dependant) includes:
• the member’s spouse – legally and de facto
• the member’s child (of any age), and
• someone with whom the member has an interdependency relationship (generally someone with whom the member has a close personal relationship and lives, and where one or each of them provides the other with domestic support and personal care).

A “SIS dependant “also includes someone who is a dependant within the ordinary meaning of that term (an ‘ordinary meaning’ dependant), such as a person who may not be a spouse or child but who depends on the member financially. If an individual is not an SIS dependant, they can only receive a member’s death benefits via the deceased member’s estate.

Common mistakes to avoid in SMSF estate planning

There are several common mistakes to avoid when creating an estate plan using SMSF.

These mistakes include:
• Failing to create a BDBN: Without a BDBN, your benefits may not be distributed according to your wishes.
• Failing to understand who may control your SMSF after your death.
• Failing to have your Trust Deed updated regularly and referring to this in the Estate planning process.
• Best practice is to have a corporate trustee
• Failing to set up the right pension and the conflict between DBBN and reversionary pension.
• Failing to recognize who is dependent vs nondependent.
• Failing to review your estate plan regularly: Your circumstances may change over time, so it’s important to review your estate plan regularly to ensure it still reflects your wishes.
• Failing to keep your beneficiaries informed: Your beneficiaries should be informed of your estate plan, so they know what to expect after your passing.

Choosing the Right Accountant for estate planning

Choosing the right SMSF provider is important for estate planning. You should look for a provider that has experience in estate planning and can provide professional advice.
Our role at Gartly Advisory is to help advise Trustees in the Estate Planning process.
In many cases, we will assist the Trustee in the decision process of whether it is appropriate to wind up the SMSF and to be strategic about their estate planning and smsf.

SMSF estate planning checklist

To help you create an estate plan using SMSF, here’s a checklist of things to consider:
• Create a BDBN and make sure your will works in conjunction with your super strategy
• Review your estate plan regularly.
• Brief your POA and appointer legal representative of your wishes post death as they should be appointed to your SMSF to act post death
• Keep your Deed up to date.• Keep your beneficiaries informed.
• Consider the tax implications of your estate plan
• Choose the right SMSF provider
Estate planning should not be overlooked.

By leveraging the power of SMSF, estate planning can give estate planning control over your retirement savings and can be used to create a tax-efficient estate plan. Peace of mind knowing that your superannuation ends up with the right loved ones is a powerful aspect of having an estate plan.

SMSF and commercial property is an investment often held by an SMSF and is a good strategy. Is holding your business premises, Factory or shop in an SMSF a good strategy?

Allowing your SMSF to hold your business real property is a fantastic opportunity for the small business owner to isolate its business asset from the main trading company. It also means you can become a long-term tenant of your SMSF.

There are some distinct advantages for both estate planning and long-term protection strategies of your asset in an SMSF. Any property strategy it must be done properly and there are a few items that you need to address before undertaking this measure in your self-managed fund.

SMSF advantages holding business real property

It is the only opportunity that you have under superannuation law to transfer a business real property from yourself into the Fund. Normally it is not possible to transfer property however your business premises is one exception.

Holding your business real property allows your super fund to grow organically and means that instead of paying rent to a landlord you are paying yourself via your SMSF and growing your retirement funds.

It’s a clever way to pay off your assets and at the end of the day when you retire you can then rent the property to others or have your family be part of your SMSF and they take over the asset
Before purchasing the property or transferring the property with a commercial property take time to work through your Funds investment strategy and how the asset will be acquired by your Fund.

How your Fund can acquire property:

Your fund can acquire the property in a number of ways and these include:
1. Establishing a borrowing in relation to the acquisition of the property however needs to be done in connection with using a bare trust arrangement it is essential that we need a separate bare trust from the SMSF assets If you’re borrowing to buy a commercial property, it needs to be under a limited recourse borrowing arrangement (LRBA). involved.

per the CPA – Borrowing – who can lend the SMSF the money?

There are no restrictions on who can provide the finance for the SMSF, meaning it could include any financial institution, a related entity or a member of the fund.
An LRBA is not a regulated financial product. However, as discussed earlier ASIC has stated that an adviser cannot recommend an SMSF trustee invest in property through their SMSF unless the adviser is appropriately licensed under the AFSL regime. Geoff Gartly has an ASFL and can appropriately advise you in this area.

2. If your Fund has sufficient monies, it can buy in your SMSF and commercial property outright

Or we can arrange for additional contributions to be contributed to help ensure there are sufficient funds.

3. The fund can in some circumstances acquire a commercial property in partnership with yourself or others providing there is no borrowing attached.

Arm’s length dealings

Once you have purchased or transferred the property into the Fund, then you must ensure that you put a commercial lease in place. This is important for both external parties or yourself if you’re running to get back to yourself at a market rental. Importantly once in place, you must ensure rental payments are made per the lease agreement. Failure to do so may make the Fund non-complying.

The property holding Strategy

It comes down to strategy when working out if SMSF and commercial property is the right mix.

Often overlooked is the fact that property and improvements can only be done from cash from the Fund and cannot be done from borrowing, and this should be factored in from the outset
Your SMSF Property strategy should include a :

• Vision for the long-term use of the property
• How the Fund will pay any shortfall if monies borrowed
• What happens if the business owner dies
• If your business is sold, do you rent out or sell the property

Any property sold in a retirement strategy may result in low or no tax payable depending upon the strategy adopted.

We recommend you seek proper advice and the information we have provided is of general nature only

The downsizer contribution is an after-tax contribution. Therefore when it hits your SMSF or super fund, no tax is payable on the way in. It also means upon retirement, and it can be paid as a benefit. A benefit that is returned tax-free when you withdraw the funds from your SMSF

Legislation passed

Last week parliament passed legislation, resulting in the downsizer contribution to allow house owners over the age of 55 to access this strategy. The lowering to age 55 is expected date for the enactment would be later this year (2022)

Downsizer contributions help you to increase your super balance. The downsized strategy a great way to catch up on lost retirement savings and grow your retirement nest.

Do you qualify to meet the downsized contribution strategy?

Per the ATO there are some of the eligibility criteria you must satisfy are:
• The home must be in Australia, have been owned by you or your spouse for at least ten years, and the disposal must be exempt or partially exempt from capital gains tax (CGT).
• You have not previously made a downsizer contribution to your super from selling another home or from the part sale of your home.
• Before (or at the same time) making your contribution, you must provide your fund with the ‘Downsizer contributions into super form.’

The downsizer contribution strategy can work for many who meet the downsizer criteria. It means your investments can grow in a protected environment at a low or upon retirement in the pension phase with no tax environment. This, together with other strategies, can form part of your retirement strategies.

Talk to Geoff, who specialises in SMSF advice and small business exit strategies to help businesses transition from business to enjoyment by unlocking their wealth from large family homes and businesses.

Gifting Assets to your Family Trust or transferring property to a trust protects your investments and assets by placing them in a Trust Environment!

Let’s explore why you would transfer a property into a Trust or just give money to your Trust!

There are many opportunities for this. For a start a Family Trust is great for tax planning. Many of us establish a Family Trust for asset protection and to ensure our assets are correctly passed on to the next generation.

Your Family Trust should be the hub of your investments allowing for flexibility and control of your family assets!

Having now established your Trust, you may now ask how do I get money into the Trust and what can i use it for?

Fundamentals of a family trust

Let’s explore the basics of a family trust first. The Trust has a couple of fundamental elements that you should be aware of, but in simple terms these are:

• Trust Deed – the rule book of how you run your Trust
• Settlor – establishes the family’s trust.
• Trustee – runs the Trust on behalf of the beneficiaries
• Appointor – appoints the Trustee.
• Beneficiary – family who benefits from the Trust.

How do I get money into my family trust?

There are two main ways to add money into your trust :

1. Gifting assets from your funds to the trust.

2. A Loan from you to trust – repayable defined or non-defined

Either method works but gifting assets to your Trust is better for estate planning.

In transferring your Asset to the Trust make sure you have ticked all the legal boxes. This will mean that the Trust Assets are secure and recognised as owned by the family trust. The Trustee should for all property and loan transfers document the transfer. Minutes should explain why and how the it is a gift to teh Trust. Assets that are transferred to your Trust these will then be allocated to the Corpus of the Trust

A Trust is a legal entity. However, some registries won’t recognise the Trust but require the Trustee to be the registered owner on behalf of the Trust.

Beware Gifting means not easy to get it back

There are 2 points here you should consider

Transferring the Asset or loan to the Trust as a gift achieves your estate planning needs . The asset or money is gifted it forms part of the capital or corpus of the Trust. In simple terms your Trust now owns it and the only way to get it back is to either make a specific distribution as capital or vest (ie windup) the Trust. In most cases, upon vesting of the Trust the capital would be distributable to the default beneficiaries. To understand how it would work for your circumstances you should consult you’re Trust Deed

Point 2 – is the ability of the Trust to enter into a Gift and loan back arrangement. Be careful if you are considering this as again it needs a well-documented agreement and actual $$$ changing hands.

Loaning money to your Trust!

Loaning money to your Trust will allow you to request that you can recall the monies you have lent to the Trust . Repayments will depend upon the Trust the ability to pay and several other factors. Even though a loan agreement is not necessary, many people still decide to draw up an agreement for certainty and estate planning.

The Trustee has an obligation to repay the loan if requested. When there is no loan agreement is in place , then the loan should be recorded by the Trustee by a minute to ensue there is some documentation. The accountant should record it on the Trusts balance sheet. As Trustee or the lender you can request interest can be charged but that again depends upon what you have agreed to with the Trust and you as the lender.

Gifting assets to the Trust

There will be Capital Gains implications and we can assist you here . Tread carefully and allow us to help you work through the implications of the potential transfer..

A Trust can help protect you and your family’s assets. Many families gift assets to the Trust. This means that you forego ownership and the asset forms part of the Trust’s capital or corpus. A Trust can offer protection over time. Your Trust protects your assets when things go wrong. These include Creditors, angry family members and newly wedded children. The Trust protects your Assets as these people are now not able to make a claim on these assets as they are now owned by the Trust.

A Family Trust, mechanism allows the control to be established by yourself as the Appointor. The appointor has the ability to fire and hire the Trustee. This means that you effectively control the Trust.

Upon your death, your executor acts on your behalf. The great thing is that the Trust continues to the next generation detailed in the Trust Deed. This will continue until the trust vesting day normally 80 years after establishment.

There are Social Security opportunities . Gifting can in some circumstances for social security planning but seek advice!

Every person’s circumstances are different. Therefore what we have outlined above is a very simplified summary of the operation of the trust and your money. We suggest that you seek professional advice. We are happy to assist you if you need help in this area.

Reach out to Geoff if you wish to talk about your circumstances. Phone 95979966

When I die what happens to my business and my affairs? Will my business continue or just stop?

If you were running as a sole trader and you die, in most cases, your legal personal representative will step in . It is their role to manage your business. They can assess if the business needs to be wound up, sold or transferred to a beneficiary.

Your business asset forms part of the assets of the estate. Therefore legally executed will , can help give certainty to your wishes.

Many clients are unsure of the process of what happens once they die.

There are several matters that should be dealt . These need to be dealt with in a timely matter when it comes to a sole trader business.

What happens after I die? The process of winding up my affairs

The process that can take place after death include

• The business continuation is a going concern ! – The longer the business is left un-managed, the greater chance that the business value may disappear
• Your executor will take control of your business until its decided upon . It maybe be sold wound up or given to a beneficiary as part of the estate distribution
• Choose your executor wisely that can deal with your business affairs
• Until probate takes place, its best to ensure if a beneficiary is to inherit the business that, this takes place as soon as practical. If this cant take place then allow a beneficiary to act as a caretaker mode
• Reassure customers and suppliers of the situation., Ensure, where possible, that the business remains of value and assets are protected from going missing
• Chase down outstanding monies and secure the business assets from theft. Stop and people thinking well the business owner has died they won’t care!

The business forms part of the estate and impacts the final distribution to beneficiaries. Often upon the death of a sole trader, there may be outstanding debts to the ATO, suppliers and financiers. If there are insufficient assets upon realisation to pay the debts, the estate is placed in bankruptcy.

Sometimes a business who is a sole trader dies suddenly leaving lots of debt. If the estate is unable to pay, then the estate becomes bankrupt. Pleas talk to us if this maybe your situation for a person you are acting for after death.

For those who run their business in a Company or a Family Trust

If you choose to operate your business as a Company or a Trust, your legal representative should be appointed as the Director or Trustee in your place. In this case, the business would continue. The ownership if the shares were owned by you it may form part of your estate. This may include any loan account owing to or from the Company.

If your ownership of your business is held by your Trust then you will need to consult your Trust Deed and control will also be held by the appointor and or Trusteee. This is an interesting area of law and taxation and we suggest you consult us.

Careful planning required

We suggest careful planning of your affairs. Planning will ensure that when it comes to your business, your wishes and adhered to and that a plan in cases of death has been considered to assist the executor in managing the sale of the business. It is why for many reasons, Life Insurance is recommended. Insurance will ensure that insurance proceeds can cover some of these unexpected business expenses.

If you are an executor you need to act to preserve the business value and we can help here

As a final tip is to make sure all registrations such as GST, ABN, social media accounts and WorkCover have been cancelled. This will avoid recurring notices. We can assist you here!

We welcome you to contact us and discuss a plan so that we can guide you on how you would like to finalize your affairs after the man upstairs has called you for higher duties.

https://calendly.com/geoff-gartly/complimentary-new-client-meetup

Reach out if you need our help