I get that structures are boring. These you may think are only something that lawyers and accountants get excited about.
It does not help that we accountants and lawyers talk about structures in a way that is boring. We talk gibberish too. And that is one of the reasons medical professionals get turned off.
But structures are one of the most important things you can decide on.
That’s because
- Your structure determines how much tax you pay and\
- Your structure determines the level of asset protection you have.
Now when I mention taxes and asset protection most of my medical clients focus on the taxes part thinking reduced taxes is the be all and end all. I don’t blame them. Medical professionals pay a crap load of taxes so I get it. But here’s the thing. Most will ignore asset protection.
Many will be told the structure they have means risking assets but when given the alternatives they decide not to take them because those alternatives cost money.
But I am going to give you a story that may bring tears to your eyes. It certainly brought tears to the eyes of Mae, one of my team members who has been diligently looking after our client for several years.
The story starts about 4 years ago. We were asked to look after the bookkeeping for a family business operating as a discretionary trust. We advised them at the time that they should consider a corporate trustee but that meant spending money on a corporate trustee of approximately $1,500 plus annual running costs of about $500.
After they discussed this with their accountant, they felt the risk was low and not worth spending this money. Furthermore, the business was doing well so why bother.
Fast forward 4 years and the trust is in financial trouble. There is a potential call on the trust of $800,000 and the trust does not have the funds. If the trust defaults a claim can be made personally on the trustees and everything they own.
This week we had the horrible conversation where we told him that it was likely he would lose his home. This was subsequently confirmed by independent advice from a liquidator.
And that could have been avoided by spending a few thousand dollars over the last 4 years.
Let me repeat this. He will lose his home because he has the wrong structure.
Want more examples? Last year we had a new client operating as a medical centre. The accountant they were using at the time was not someone who understood the medical industry and set up the medical centre as a discretionary trust.
Now if you know the medical industry then you know that medical centres are often set up as unit trusts because practices often have business partners. Our client now wants to take on a partner …. but cannot because the structure is wrong. Well, that’s not true. They can but it means a complete restructure requiring professional fees and payment of a lot of stamp duty.
So your structure is not a problem until it becomes a problem. So, here’s a tip. Work backwards. What’s the worse that can happen? Then work out how do we get around it.
Structures is Step 1 of our 9 steps to reduce working hours, have financial freedom and wealth. If you would like to discuss this in more detail contact us on 1800 440 316 or email hitesh@wowadvisors.com.au
