But in your own life you can do something, and I want to show you how to do it. Bulletproof journey - and put a trademark on the end.. Protecting yourself and your family is a way to empower yourself – and it’s not that hard to do – mostly we just don’t turn our minds to doing it. The consequences – letter from lawyer; day in court; estate lost through lack of foresight; anonymous bureaucracy seizing to make fundamental decisions for yourself; personal injuries to knock socks off; an insurance claim gone awry. Proactive not reactive.
When you leave here today I want you to take one thing away with you to make your investment worthwhile on its own. Actually…. you will know how to ask the hard questions about your financial and legal affairs NOW instead of suffering a catastrophe later. Proactive not reactive. As you will soon see, this is more about a frame of mind than any mastery of detail. If I was a slick salesperson I would call it a “BP consciousness” and put a trademark on the end. I will introduce you to the idea of a Bullet-Proof Action Plan - that will revolutionise your approach to protecting yourself, your family and your assets. You will also know the and identify the milestones that remind you to review your Bullet-Proof Action Plan and act on it.
My book begins with this line. Slide = this is Buddhism We desperately try to bring order from the chaos around us – whole philosophical systems - there is a branch of science called evolutionary biology – to bring order to chaos – but it’s chaotic anyway – you know it - and worse it’s an unpredictable chaos …. Sailing along and then wham Tsunami …hit in the head by a runaway jet ski. Life is unpredictable. You can deal with this uncertainty in three ways: 1. Hide in a cave. = 10% Retreat. 2. Continue on as you always have and hope that nothing bad happens to you. = 75 - 80% 3. Continue on as you always have, hope that nothing bad happens to you, but take appropriate precautions just in case. Proactive not reactive. In other words, bulletproof your life. You will not be surprised that my professional opinion is to opt for choice number three. That’s an elite category – once you adopt that bulletproof frame of mind you are already puts you way ahead of the game. Can you bullet-proof your life from all dire circumstance? Not unless…hid cave – falling rocks. But so what? Should you nevertheless protect yourself and your family as best you can? Absolutely, and it will be one of the best investments you ever make.
Those of you old enough will remember a Skyhooks album and song called “Ego is not a dirty word…” 30 years ago ….control is a term that had got a bad rap. Think of it this way – someone plunging a needle into your arm can be a bad or a good thing. It’s the same with control. It can be something you want to exert over others - generally not a good thing - or something you want to exert over your own life - generally a very good thing. Similarly, you don’t want to be controlled by a bureaucracy that doesn’t care what’s best for you, or a legal system that exploits you.
Here’s something else I want to do for you – I want you to have less stress. Now, I have nothing against yoga – or meditation…Vic Govt Report – too late for stress relief once car accident has taken place. But I want to ffer you another way to lower your stress levels. We now see books about this everywhere – one is called “Clutter Control” “Outwitting Clutter” There’s even a very helpful book titled Clear Your Clutter With Feng Shui. And my favourite - Organizing from the Inside Out: The Foolproof System For Organizing Your Home, Your Office and Your Life Let me share with you the bulletproof prescription for stress relief – because your life is not cluttered up by useless problems you could have avoided. Software. David Pogue, the technology writer for the NYT, calls this the “the lack of power principle” – today buying software is more like joining a club where you pay dues. Every year they tell us that they’ve added more features and they sell it to you for another $99. In the bulletproof world you only have so many hours in the day to devote to the myriad things you have filled it with. So when something goes wrong – something you haven’t budgeted time for because all your time is allocated and you’re worn out by all the responsibilities you have – at that point you overreact to the practical issue, which quickly becomes an emotional issue. A fight with your neighbour…you don’t just dislike him because he sets off alarm, now you hate him So what is our response to all of this? We have been taught that life is now so complicated that it has to be outsourced to professionals I repeat, it’s not power that corrupts, it’s lack of power. And one of those corruptions is that you can’t avoid legal problems, and if they occur you have to go running to a lawyer. Well, I’m here to tell you that you can. That’s the bulletproof way. Proactive not reactive. There is a saying in the digital world: “When it comes to tech, simplicity sells”. Ipod. I have co-opted…
When it comes to the law, simplicity is power. That’s why I called my book, “ Simple strategies to protect your assets etc” It’s not because you the reader or you the audience member are simple or lacking in intelligence –far from it, or you wouldn’t be here today - no, it’s because simple is better!
How do I know so much about …. meets your needs”. LawMatch™ aims to save consumers’ time by making the process of finding and choosing a lawyer easier, more informed and more effective About My Problem Some time ago it occurred to me that the information categorized and collated from LawMatch™ provides an invaluable insight into consumers’ legal problems Combing through the thousands of LawMatch™ applications, some themes emerge: Bullet-proofing your life will: protect your assets and your wealth; ensure your wealth is distributed to those you choose whilst minimising tax and maximising its lasting value; guarantee that your right to make your own life-changing decisions is never taken away by courts or the Government; help you steer clear of one of the worst occurrences that can befall an otherwise honest citizen - getting lost in the labyrinth maze of the legal system; bring you the self respect that can only come from knowing you’ve taken care of yourself and your family; teach your children the values that will stand them in good stead when they have families of their own; put you in the driver’s seat if you ever need to see a legal professional or financial expert; save you time and money (lots of both); ease your mind and avoid stress. It is as much a state of mind as a method. Proactive not reactive.
Huh? That’s it? …That’s the Big Payoff. That’s the Big Secret. They don’t lose sleep when the refrigerator breaks down. Let’s look at it from the point of view of a family struggling to make ends meet: And he’s right. Same situation. This time the couple is affluent:
Okay, you’re right, the refrigerator was replaced without a care in the world because money isn’t a problem. But do you really think that’s why our rich friend Rhonda has more control over her life than you? No, of course not. The refrigerator is just a piece in the puzzle…because she knows what you need to learn: peace of mind is your highest goal. She might put it differently, but she will passionately agree that she doesn’t want needless hassles. And that’s why she bullet-proofs her life. The money is great, and if that’s what you aspire to as well, good luck and I wish you well But a big chunk of that peace of mind, so treasured by our rich friend, can be yours, too. Believe me.
Rich people cover all the bases. They know that life is too short to be at the mercy of circumstance (or broken appliances). That’s why they create powers of attorney – just like you will after you leave here today;
This is more than an interesting list of provocative questions – it shows something else, that bulletproofing is a question of values. I always tell my kids, And values are most often on display when our children see how we deal with adversity – or from the bullet-proof point of view, how we selfishly failed to avoid it.
It’s always a question of values. In fact, the older I get, the more I think that everything is about values. Ask yourself: when my life is over, or when calamity strikes, or when I can no longer make decisions for myself because of illness or disability, what are the values that I want to pass on to those for whom I am accountable.
This is the other thing to take away from this checklist – it’s the principle I want you to take away today. It’s a secret that all lawyers know -
Woody Allen once said. ………………….. As we have noted, values are paramount in the bullet-proof life ….is a value of the highest order. Clearly it’s unpleasant to contemplate our own demise …. it is self-centred not to plan for the inevitability of death. Here at Bullet-Proof Central we’re sensitive to the apprehension most people feel when they consider their mortality, but sorry, that’s what values questions are all about - doing what’s right because it’s right. So as a first step towards the bullet-proof life, we need to look at planning our estate.
I’m sorry to have to tell you this, but notwithstanding Yummy. Despite all of this the likelihood of our mortality is….(okay, take a guess). Adding to our anxieties, the time of our demise is maddeningly uncertain. Whole religious and philosophical systems …not one of us can deny this basic Truth: We are all going to die, and mostly we have no idea when it’s going to happen. Okay, you grudgingly reply, death is non-negotiable, but surely I need a respectable net wealth. Wrong. You may not consider yourself rich, but no matter where you believe you stand on the socio-economic ladder, you always need a will. Anyhow, be careful that you don’t t undervalue your true wealth… Here is the bulletproof attitude you should take into thinking about your estate – that a will is much, much more than the mere transfer of an inventory of assets. Remember our emphasis on using the will to communicate your values – ask yourself: I’m sorry to have to tell you this, but notwithstanding Yummy. Despite all of this the likelihood of our mortality is….(okay, take a guess). Adding to our anxieties, the time of our demise is maddeningly uncertain. Whole religious and philosophical systems …not one of us can deny this basic Truth: We are all going to die, and mostly we have no idea when it’s going to happen. Okay, you grudgingly reply, death is non-negotiable, but surely I need a respectable net wealth. Wrong. You may not consider yourself rich, but no matter where you believe you stand on the socio-economic ladder, you always need a will. Anyhow, be careful that you don’t t undervalue your true wealth… Here is the bulletproof attitude you should take into thinking about your estate – that a will is much, much more than the mere transfer of an inventory of assets. Remember our emphasis on using the will to communicate your values – ask yourself:
Ask this question - What are the values that I want to pass on to those for whom I am accountable? Using this formula, it allows you to: avoid family squabbles about your estate; decide who will be appointed a guardian to look after your children until they can take care of themselves; leave charitable gifts; appoint a trustee for the money and assets you leave to minor children (or other loved ones who cannot control their funds); take care of the needs of disabled loved ones; tell your Executor what you want for your funeral ; make decisions about organ donation and medical research; deal with the vexed issues of former partners/spouses and blended families. A will achieves one paramount purpose of value … die without a will – or an inadequate will that invites conflict – you leave behind a mess. It is selfish and completely unnecessary.
DIY? … sometimes as little as $300, and you have the peace of mind knowing your intentions will be realised. Go online and do some research or some reading in the library, you’ll be surprised how little effort it takes to make a more informed judgement.
But leaving assets directly to another person through a will …using a trust. Trusts are used by solicitors and accountants for many reasons - probably the most common is a family… A testamentary trust is a similar idea, but it happens via your will. From an estate planning perspective, testamentary trusts offer almost endless flexibility for accountants and financial planning.
A testamentary trust differs from a traditional will in …
Take the example of a couple whose son cannot make reasonable financial decisions because of a significant intellectual disability. What if parents are concerned about a child’s marriage… There are also tax savings to be had, and though they can be significant …given the huge rate of divorce it’s a reasonable anxiety. It is also protective – one of your beneficiaries is a professional - The reasons you don’t want to do it? – there is a well known lawyer who always asks this rhetorical question. Story about accredited specialist said… And so it goes. One person’s medicine is another’s poison. I think my colleague could have tempered his views a little, but equally I could have also, and since that day I’ve been less starry-eyed about testamentary trusts.
Let’s begin the next section of our talk with a straightforward proposition – it’s a lot easier to lose your assets than it is to accumulate them. The accumulation phase is uphill all the way… Throughout our homes are our solace, a retreat from the hurl-burly and an investment that miraculously grows in value year after year.
If our home is our treasure, how much greater the folly when we lose it to our own stupidity. Let’s take a tour through the Great Housing Graveyard. Look around at the inscriptions on the tombstones, epitaphs to lost opportunities:
The second way to bulletproof your assets is by getting adequate and appropriate insurance. Insurance is the most accessible form of asset protection. By taking out insurance you transfer the risk of losing assets from yourself to an insurance company. Buying insurance should be a carefully considered transaction, but sadly most people …dumb luck. Look, it’s easy to be cynical about insurance…
having in mind the components of the total cost of making certain you have incorporated the value of any improvements ensuring you contact the insurance company when renovations take place keeping a complete inventory of contents; not relying on the value of the property in the rates notice From The LawMatch Files - Marie and Charles bought their house ten years ago.
$10,000 cabinet but they are worth $20,000, then only 50% of its value is insured. If there is a fire and the cabinet suffers $12,000.00 worth of damage, the averaging clause allows the insurer to pay only $6,000.00 on the claim i.e. 50% of the claim. Hand up whoever believes they are covered for flood in their home and contents insurance? Here are the facts:
rainwater damage may occur when rain seeps into your house, but might exclude flash-flooding; storm water damage occurs when the storm causes a hole in the structure and water pours in; flood damage occurs when rivers, dams and the like overflow. Here’s an example from an insurance policy: “Flood means the inundation of normally dry land by water escaping or released from the normal confines of any water course or lake whether or not altered or modified or of any reservoir canal or dam.” Some definitions are broader or narrower.
What is you most valuable asset? Take a few seconds to think about it….no, it’s not your house, or your superannuation - it’s your ability to earn a living, but just as you insure your house, so should you insure your income.
The bulletproof mistake that most people make is to look at income protection as something for when you get older – which misses the point – Your age – What you can afford – the longer the length of time you will receive payments (e.g. two years or up to age 65 How much do you need – the benefit is generally up to about 75% of your salary. Do you have a mortgage Do you have any equivalent cover, for example salary continuance insurance in your superannuation? What is covered – If the policy includes “illness” and “injury”, does it cover "pre-existing" illnesses – and how is that defined?
Here at Bullet-Proof Central we prefer to gently nudge you in the right direction, but every now and again … it won’t cost a cent. It’s always possible that some time in the future you will lose your ability to manage your financial and personal affairs because of accident or illness. The bullet-proof solution is to proactively appoint someone to make those decisions for you. This person is known as your “attorney” or “power of attorney”. Otherwise this choice will be made anyhow, not by you, but often by a State Government Tribunal or Court that may appoint a Government Department to make these decisions on your behalf, even if there are relatives available to step into your shoes. Here’s how it works – guardianship jurisdiction.
Explain a general power of attorney c.f. an enduring power of attorney Explain a medical power of attorney – not in every State. In some States, as well as deciding what treatment is appropriate, your attorney can also refuse treatment on your behalf. In general, to do this your attorney must: have sufficient information about your state of health; understand this information; and sign the appropriate documentation and/or seek the appropriate Court/Tribunal orders. Explain an Enduring Power of Guardianship. Along with the financial enduring power of attorney, this is a crucial bullet-proof measure to plan for your future. As you get older (and even when you are young and apparently healthy) … As well, the extent of these powers depends on what you have written in the enduring power of guardianship form. They are circumscribed by you. For example, they could include: all the powers of a guardian; or specific limited powers, such as where you live, your health care etc.
What’s the difference between a guardian appointed by a Tribunal and an enduring guardian appointed by an enduring power of attorney you make yourself? Their responsibilities are the same …But from a bullet-proof point of view the difference is stark.
As we have previously emphasised, the bullet-proof life is often about values, and in this case the appropriate value is to repay parents with guidance and support, before a crisis occurs. Their freedom of decision making, and their rights of self-determination, should be preserved at all costs. Appropriate powers of attorney are a straightforward means to achieve this.
Most of us will accrue two significant investments in our lifetimes. We’ve looked at ways to bullet-proof your (most likely) largest asset, the family home. Now we turn to superannuation, probably your next most valuable investment. The idea behind superannuation is straightforward enough. The tricky part is this: you hold superannuation in a strict regulatory environment that can be changed at the whim of the Federal Government. Max Newnham. In this chapter we address a crucial bullet-proof issue – what happens to your superannuation funds after you die, and how to ensure the trustee distributes the funds in a tax-effective way. Super changes have become crucial. For our purposes what is important is the superannuation benefits payable as a tax-free lump sum or income stream for people aged 60 and over.
Perhaps you have gone to a lot of trouble and expense to set up a testamentary trust. You have done this because each of your two married children have young children of their own (your grandchildren) and you want to take advantage of the tax exemptions available to them through a testamentary trust, perhaps to assist with their education. As well, you are concerned about the stability one of your children’s marriages and have concerns about the business practices of a son-in-law. Superannuation is your largest financial resource, and attached to is a life insurance policy to boost the payout. Unfortunately you did not make a binding nomination, and so after your death the trustee of the superannuation fund decides to distribute the funds directly to your children, not to your estate (thus the testamentary trust is bypassed). The consequence is a larger tax liability for your children, your super payout is at risk to creditors, and should they divorce, your superannuation death benefit will be available to be divided as part of marital property. Precisely what you did not want. Try this question – after I die my superannuation:
The answer - all of the above, including your mother-in-law if she can prove she was financially dependent on you when you died. Take that! Why are these the answers? Superannuation funds are subject to a “sole purpose test”, which requires the trustee to maintain the fund for the core goals of paying retirement benefits to the member and death benefits to their dependents or estate. Therefore, to be eligible to receive a superannuation death benefit, you must be a “dependant” of the member who died. Who is a “dependent”?” In general it will be:
Kathy believes she has a claim on her brother Eric’s superannuation death benefit. Three years ago she lent $50,000 to her nephew, Eric’s son Stan, to help him start a business. Eric did not have liquid assets to assist Stan due to his terminal illness, but promised Kathy she would be able to claim on his superannuation death benefit, which would be significant and included a life insurance component. They drew up a letter that she could show to the fund trustee when he died. She did precisely this, but the trustee refused to pay because she was not a “dependent” for the purposes of a super payout. She applied to LawMatch looking for a lawyer to help her assert her claim. Take a deep breath and relax, please. We’re now going to look at a bureaucratic nightmare that can disrupt your bullet-proof plans. First, a principle:
Time to take another deep breath. Actually, this is confusing, but the crucial bullet-proof issue is this – although the superannuation laws allow you to make a binding nomination to any dependent, if that recipient is not also a dependent for tax purposes, their payout will be taxed. Still confused? Remember this - if you have adult children who are no longer financially dependent on you, make sure you discuss with your accountant the tax implications of a binding nomination in their favour. Some in the superannuation industry describe this as a de facto death duty – this is a fair description given that a significant percentage of superannuation beneficiaries will be financially independent adult children of the deceased member.
At a seminar I once attended, we were handed a pamphlet advertising counseling services for divorced clients. It’s like that. We withdraw from the emotional battlefield to lick our wounds, but there’s plenty of baggage that gets projected onto the next arena – dividing the assets. That’s not a criticism, it’s just the way it is. Every lawyer has had a client who says, “I’m thinking of leaving my wife/husband, tell me which at I can do to protect what I’ve got”. There are a thousand variations on this conversation, and excerpts from a few LawMatch applications help us set the scene for this
Joint assets Every lawyer has had clients who are shocked to discover that their “half” of the marital home, if held in joint names, cannot be passed on in their will. This is why you must be careful to deal with joint property as soon as you separate. Take this scenario – a wife and husband separate. They do not change their wills, which leaves their estate to each other, or their superannuation death benefit nominations, which names the estate. …The kids get nothing. Superannuation What about your superannuation? Is that part of the property available to the Family Court in dividing up assets, or is it protected? Many people are unaware that following changes to the Family Law Act… must get independent legal advice.
All this is leading to an obvious conclusion - If there’s one thing we hear over and over at LawMatch, it’s a lament along the lines of, “I wish we had made a prenup.” Partly this reflects a “Hollywood” view of the law. How often have the police in Law and Order rejected a suspect because “they had a prenup so he had nothing to gain from her murder”.
You can negotiate a Financial Agreements before or during marriage or following separation or divorce. To make a binding Agreement (so it is enforceable), both partners must get independent legal advice. A Cohabitation Agreement achieves much the same result, but instead applies to a de facto or same sex relationship, governed by State laws, although they may continue if the de facto partners later decide to marry.
Family Trust (also called a Discretionary Trust) is one of the most common small business structures in Australia. Compared to a testamentary trust, it is a trust created during a person’s lifetime – rather than being subject to a will, it is created by a trust deed.
Yes, there are good reasons to establish a family trust. But apart from these, for bullet-proof purposes alone, it may also offer protection from creditors and Why? Because you have to “own” an asset before it is available to be distributed to creditors or litigants. The traditional view of family trusts is that a beneficiary does not have an “actual” interest in the property of the trust, but instead has an “expectancy” that might or might not be realised – as we have already learnt, the assets of the trust are distributed at the discretion of the trustee. This traditional view may no longer be written in stone. - “alter-ego” of the beneficiary - a “proprietary interest” that was available to be claimed by creditors in a bankruptcy. In other words, the person benefiting from the trust was also in control of it, and therefore had a type of ownership of the trust assets, which made them available to be paid to creditors – as a result the trust was ineffective as an asset protection tool .
Because it represents a unique chance to bullet-proof your assets. Reasonable Benefits Limits (RBLs) were restrictions ..since RBLs have been abolished under the Simplified Super reforms, this effectively means that superannuation funds are protected against creditors so long as the contributions are legitimately made for superannuation purposes and not in a deliberate effort to defeat creditors . Other types of savings remain available to pay creditors in a bankruptcy. Changes made to the Bankruptcy Act in 2007 address the “clawback” of superannuation contributions that are intended to defeat creditors.
This has to be a truncated version of what is available in the book – this is not to sell you books, but because I don’t want you to think that this part of the seminar is comprehensive. It’s not – we’d have to be here all day to achieve that. The Action Plan divides your life into ten milestones we call “Life Events”. Of course they may not happen to you in this order, or occur at all, but it covers most of the bases:
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