Asset Protection, Retirement Planning and Succession Planning and Superannuation Planning 2007

Asset Protection Be realistic about the risks Do not own assets personally: –superannuation fund; –family trust; –investment company owned by a non-risk person such as a family trust –spouse. Residential property a special case –Interest only? – Capitalize the interest? – Tax benefit may dominate the decision

Asset Protection: Family Trust Family trust/discretionary trust Very tax efficient Beneficiaries do not have an interest in the trust or its underlying property Positive cash flow investments; and/or Negative cash flow investments when trust owns a business or has other taxable income Can claim 50% CGT exemption on all assets held for more than 12 months Other CGT exemptions apply.

Asset Protection: Superannuation Fund Applies to all types of superannuation fund Bankruptcy Act protection: policy issue Some concerns about benefits above RBLs but RBLs gone from 1 July 2007 Alan Bond a special case (he got caught) preservation rules apply Super much better from 1 July 2007

Investment Company owned by Family Trust typically only used for business owners when profits excessive, ie when marginal tax rate greater than 30% shares owned by a family trust taxed at just 30%, not 45%, and possibly less due to timing of franked dividends cannot claim 50% CGT exemption but –70 cents in $ available for investing –higher after tax rate of return –do not use when expect large short term capital gain –not suited to residential property –suited to shares and commercial property

Asset Protection: Spouse Assumes spouse not in a litigious occupation No suited to cash holdings Expensive -chocolates -flowers -holidays

Retirement Planning: The Problem Burn out is a real issue amongst older doctors, particularly male doctors At age 40 most doctors have already done more than a “normal” working life High pressure Health problems High morbidity rates Marital stress

Retirement Planning: The Solution Start early and never stop Client’s current projected work pattern Our preferred projected work pattern Work intensity

Retirement planning: the solution Start early and never stop Live longer Have more fun Do more good Make more money Pay less tax And if you die, even better

Facilitating Gradual Retirement Hard for solo doctors or others with fixed costs. Profit falls more than proportionately to hours BEP

Retirement Planning Solution for solo doctors? Sell your practice Amalgamate your practice and negotiate a lower management fee on own patients and reducing hours ensure continuity of care CGT exemptions on surgery If all else fails, abandon your practice

Estate Planning What is a will? What assets are covered by a will? What assets are not covered by a will? -property owned as a joint tenant? -family trust assets? -superannuation benefits? -spouse assets? Binding death benefit nominations

Wills Who does what, when and how? Testator and testatrix Guardian Trustee Trustee fees? Our advice? Keep it simple and remember that you are dead.

Testamentary Trusts Trust formed on death Defers time at which children receive assets Income tax advantages for children and grandchildren under 18 Asset protection advantages for all beneficiaries Special applications for disabled or disadvantaged children Dox4Dox

Succession Planning Not an issue for contractors and employees; Very much an issue for: –Sole practitioners; and –Owners of group practices: Associateships; Businesses.

Medical practice goodwill Low goodwill in medical practices in doctor to doctor sales High goodwill in medical practice sales to corporates… Few doctors buying and many interested in selling Low capital barriers to entry May be value in owning practice premises as well.