The case studies are for illustrative purposes only. You need to consider your financial situation and needs before making any decisions based on this information.
Case Study 1: The Medical Specialist
Simon is a specialist surgeon who works 60-80 hours per week. He is married with four primary school aged children. He leads a hectic life outside work with family and community activities and has little time to look after his financial affairs.
Prior to coming to Financial Keys, Simon was burdened with excessive debt. He has a large house with a large mortgage. Not only did this mean that he and his family were going backwards financially, he was stressed and this was affecting his ability to concentrate for long hours.
He and his wife had previously received poor advice to over-leverage into investments that were hit hard during the GFC. He had also received advice to borrow further to invest into residential property off the plan. His estate plan was not tailored to his family situation, nor was it tax effective.
Further adding to the mix, Simon’s superannuation fund portfolio had not been actively managed and was being chipped away at by fees and insurance costs. The insurances he did have were excessive and poorly structured.
The most urgent and critical area that needed addressing was the debt exposure. Simon’s loan was restructured resulting in a significant reduction in annual interest costs. A plan was put in place to make additional repayments to the loan funded from mortgage cost savings, dividends and income from investments and over time, sale of some of the investments where appropriate to reduce debt was agreed. Having this structure and plan in place provided him with peace of mind that this large debt burden was being addressed.
It was time to work on realigning investments in super in keeping with Simon’s risk profile, and to provide strong and consistent asset growth. We restructured the insurance so that Salary Continuance Insurance was outside super and fully tax deductible. The levels of Death and Total and Permanent Disablement (TPD) Insurance were reduced to a suitable level and moved to a less expensive insurer. The insurance policy was changed to stepped premiums to provide flexibility and reduce cost. TPD was moved to a hybrid policy allowing ‘own and any occupation’ definitions to be utilised, with proceeds accessible to client upon claim.
After getting debt and protection under control, we coordinated and executed matters with a specialist estate planning solicitor to establish Wills, Testamentary Trusts, Powers Of Attorney and Binding Death Nominations in super.
Our client’s situation now is vastly different to what it was just over 2 years ago. Simon can see his way beyond a mountain of debt to a stage where he can look to finance his children’s education, a key consideration and goal for Simon and his wife. He’s relieved to see his super balance grow, and in his words “…can now understand what a huge difference there is in getting the right advice”
Case Study 2: The Consulting Firm
A consulting firm with 750 employees and offices in all major cities around Australia. They are considered an employer of choice, and plan to remain ahead of the curve to attract and keep high calibre people.
A large number of personnel are high income earners on the top marginal rate of tax. To remain competitive in the consulting environment our client was keen to explore what benefits could be reasonably provided for staff. The company was also particularly keen to secure tenure with senior executives by providing superior benefits and long term incentives.
For all staff we were asked to provide advice on the most suitable and attractive superannuation and insurance products and services. After a robust review of available options we able to provide a bespoke solution unique to the market. To promote the benefits of the exclusive offerings and articulate the value, we were engaged to provide ongoing communications and guidance on making the most of superannuation, legislative updates and topical advice.
Financial Keys conduct national education presentations for staff on a regular basis to discuss investment options available within the fund, levels and types of insurances, and consolidation of super. Employees are given the option of one on one advice specific to their situation and on call assistance to coordinate any arising insurance claims with the claimant, employer and insurer.
For senior executives we provide tailored comprehensive advisory services, starting with a financial audit, cash-flow plan and balance sheet. Tax, structuring and estate planning are the major considerations for this group. We worked with an elite group of professional advisory firms – accounting, estate planning solicitors, and SMSF establishment and administration, to develop exclusive executive remuneration solutions. For senior staff we were able to realise considerable beneficial net tax positions.
Case Study 3: The Investment Banker
Our client, Ken, is a Chief Executive Officer of an investment bank who works 65-80 hours per week. He is married with three children, one from a past marriage and two in his present marriage, who are all school age. His first child has a learning disability. The client understands complex financial strategy, but away from work has little spare time to dedicate to running his and his family’s financial affairs.
Ken has a mortgage of over $1million with a Private Bank and receives little or no discount for the privileges of using the Private Bank. He has taken minimal advice in the past and now, entering the peak of his earning capacity, realises that his overall asset base is not befitting someone of an executive salary package that he enjoys – the asset base should be much higher.
He wants to make sure his disabled daughter is provided for. There are no estate planning structures nor accepted advice strategy in place and his insurances only cover the existing mortgage. His super fund portfolio is not actively managed and will struggle to grow to a level that will be able to sustain him and his extended family in retirement.
He pays in excess of $250,000 p.a. in taxes with no taxation planning in place. He has a share portfolio, made up of a few blue chip shares and a few speculative stocks bought on the back of tips that he received (to buy). He doesn’t participate in hybrid offers as he’s not sure if they are worthwhile. He believes that he should be able to manage his own financial affairs efficiently and effectively but doesn’t seem to get enough time.
Our first undertaking was to negotiate on our client’s behalf a reduced interest rate to help bring down debt. We then created a wealth creation and taxation planning strategy to more effectively safeguard assets, better manage tax and release funds to grow wealth. Increased tax savings allowed a stronger salary sacrifice strategy to then be implemented to increase the super balance.
Ken’s insurances were restructured so that Salary Continuance Insurance was outside super and fully tax deductible to allow his super balance to grow. The level of Death and Total and Permanent Disablement (TPD) Insurance was increased to ensure adequate monies in the event of death. Increased premiums were offset by using the savings achieved by re-structuring Ken’s Salary Continuance policy.
We helped Ken establish a Child Maintenance Trust in conjunction with a specialist lawyer. This trust for his daughter provides for her specific needs now and into the future. Together with our lawyer, we were also able to establish a Will (with provision for testamentary trust), Powers of Attorney and aligned non lapsing death nominations inside super.
Financial Keys was able to reduce Ken’s overall costs and taxes. These savings were put towards wealth creation strategies.
Case Study 4: The Retirees
A retired couple, Helen and Eugene, both aged 60 years. They have amassed $5 million in wealth outside of their house over their working careers. They have no debt. They have two adult children, both working and in their own right hold down prominent careers. Both individuals continue to busy themselves with their own personal and joint interests, enjoy overseas travel and retirement generally. They are looking for their wealth to be maintained so that it produces sufficient ongoing income to fund their lifestyle in retirement.
The bulk of their wealth is owned outside of the superannuation environment and, although no longer working, they continue to pay tax each year. They make small donations annually to charities which offsets a small amount of tax payable. Their Wills have not been updated for close to 20 years, however their wishes remain simple, in that they wish to leave all their assets to each other and then to their two children who are yet to have children of their own.
Taxable income from their retirement capital may well result in millions of tax payable over the next 20 years to 30 years. Although their adult children do not have children presently, this may well change in the future and our couple’s Will / estate planning should be reviewed to ensure that any estate wealth passes to the next generation as tax effectively as is possible. As this couple ages, they will require a trusted adviser, who have themselves a strong business and succession plan, that can accommodate the client’s needs for the next 30+ years.
By applying a staggered superannuation contribution strategy over the next five years, which includes a combination of concessional and non-concessional contributions (pre and post-tax), the couple will be able to contribute up to $2.3 million into super, which is immediately moved into the pension (or zero taxed) phase, from which an income stream can be drawn. Simultaneously, the remaining non-super assets can be invested in a manner that also provides an income, but that attract tax advantages such as franking credits or provides tax deferred income. Over Kene these assets are sold to cash, taking advantage of 12 month CGT concessions and then used to contribute to super.
The remaining wealth that cannot be contributed to super will be reviewed and implemented into a wealth creation and tax planning strategy which reduces tax payable (franking credits, tax deferred income) and allows opportunity to grow wealth for the couple and future generations. The strategy has been designed to be flexible to accommodate the couple’s situation at that future date, including but not limited to arranging a family trust (for when their children have children) and maximisation of income splitting opportunities.
The couple have now reviewed and updated their wills, with a plan to review them every 4 years. They have put in place a provision for a testamentary trust, powers of attorney and aligned their non-lapsing death nominations in super.
Helen and Eugene have also encouraged their children to review their own wealth strategy, structuring and estate planning position.