“Filthy Stinking Rich” — A Moral Lesson
Here’s a quick exercise for you.
Finish this phrase: “Rich people are______________.”
How did you complete this phrase? Are your answers mostly positive or negative? Did you think of words like successful, accomplished, and disciplined? Or did you come up negative words like greedy, snotty, or ruthless?
Whether you admire or despise the wealthy, how you feel about money and the people who have it will determine–more than the knowledge in your head or the situation you grew up under–whether you will be financially successful or not. You cannot be wealthy if you feel wealth is bad. If you have negative associations with money you will repel it rather than attract it.
This concept is nothing new, but the ramifications are huge.
I hope you want to become wealthy. More than that, I hope you want to be filthy stinking rich.
I’ll tell you why in a moment.
But first realize that if you’ve been telling yourself “I’d like to have enough to live on and do what I want, but I don’t need more than that” then you’re missing the point. The point of becoming wealthy isn’t so that you can gorge yourself on expensive things, live fat and happy, and tell the rest of the world to go to hell.
If you’ve seen “Batman Begins” you’d seen how Bruce Wayne’s father, Dr. Thomas Wayne, had left Wayne Enterprises in the hands of “more interested” individuals so that he could volunteer at the hospital. I’m sure he, speaking as if he were a real person, touched the lives of hundreds of people through his simple service.
But more than just the services he provided I’m sure that, because of the billions of dollars he had from business, he was able to provide needed medical equipment to the hospital, allow people to get surgeries that they couldn’t afford, and a lot of good was done because he had the resources to back up his volunteer work. Good people can do so much more good in the world if they have money.
Somewhere along the line many people developed the idea that being poor is holy, and that if you live in poverty amongst the poor you can do the greatest good.
I think that’s ridiculous.
I think scratching to make a living keeps people from serving others, and living paycheck to paycheck is so time consuming that it keeps people from reaching their full potential. If you can barely help yourself, it’s going to be hard to really help someone else.
“Playing little” doesn’t do anything to help the world. If that’s your game, you’re going to need a whole lot more ambition than that to make it in the real estate investing business. Only those who want to do big things with their lives are going to have the drive and vision to make it in real estate.
Get it in your head that you are going to be very wealthy, because it’s the wealthy that have the time and resources to really make a difference in the world. Even Mother Theresa, sworn to poverty, could not have accomplished a fraction of what she did without the financial backing of wealthy donors. She raised millions in her lifetime, and hard-working individuals had to earn enough money to take care of themselves first and then earn more money so they could give it away.
That is why I hope you want to be wealthy.
By the way, why do people use the term “filthy stinking rich?” Answer: Jealousy.
Sunday, March 14, 2010
Thursday, March 4, 2010
How will the new Interest Rate regime work ???
Interest rates: Another step to ‘normality’
Reserve Bank Board meeting
• The Reserve Bank has lifted the cash rate from 3.75 per cent to 4.00 per cent. If banks fully pass on the rate hike then repayments on an average $300,000 loan would lift by just over $47 a month.
• The Reserve Bank has given no guidance on future rate decisions other than highlighting the fact that borrowing rates should “be closer to average”. Overall, that suggests rates have another 35-70 basis points to go.
What does it all mean?
• It’s important not to over-analyse the latest interest rate decision. The Reserve Bank has lifted the cash rate for the simple reason is that it is still too low for an economy that is getting back to normal. And if the economy continues to improve, then we can expect the Reserve Bank to lift rates further.
• Certainly the rate decision will be ‘live’ for the next few months. The Reserve Bank doesn’t want people to assume that it has tunnel vision – that is, it is fixated on some specific interest rate goal. But the Reserve Bank Governor has provided good broad guidance, noting that interest rates are around 50-100 basis points away from ‘normal’. CommSec has consistently noted that the cash rate will be between 4.50-5.00 per cent late in 2010 and there has been nothing of late to sway us from that view.
• The one point that should always be kept in mind when rates are rising is that just a third of the population is in the process of paying off home loans. Another third are renting and the remaining third of families own their homes. The home-buying population wouldn’t be shocked by the rate decision – many of the longer-term mortgagees would be well in front in their repayments. Renters would be unfussed by the rates decision with anecdotes that some landlords are offering incentives at present such as the first month free. And home-owners would be cheering the lift in interest rates with a view to higher term deposit rates.
• When the Reserve Bank is contemplating monetary conditions in the economy, it isn’t just thinking about the cash rate and interest rates applied by lenders. It also has to keep in mind the Aussie dollar. The Aussie dollar remains strong, hovering near US90 cents and at 25-year highs against the British pound. The high Aussie may be good news for travellers, but it is keeping the pressure on exporters and tourism-dependent regions.
Interest rate decision and past cycles
• The Reserve Bank Board has lifted the cash rate by 25 basis points to 4.00 per cent – the first rate hike since December last year. In October 2009 cash rates stood at a 49-year low of 3.00 per cent. After quarter percent rate hikes in October, November and December the cash rate stood at 3.75 per cent. Rates were left unchanged in February before today’s decision to lift rates again.
• In the last rate cutting cycle the cash rate fell to lows of 4.25 percent in December 2001. In the two previous rate cutting cycles, the cash rate fell to lows of 4.75 per cent. So rates are still historically low.
• If banks pass on the latest rate hike in full, the average bank variable housing rate would lift to 6.90 per cent. Still, it’s important to note that the mortgage rate has averaged 7.60 per cent over the past 5 years and 7.25 per cent over the past decade. Mortgage rates are still low – up to 70 basis points below longer-term averages.
• The Reserve Bank hasn’t given specific guidance, other than noting that further rate hikes lie ahead: “Interest rates to most borrowers nonetheless remain lower than average. The Board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process.”
What are the implications of today’s decision?
• The Reserve Bank is taking its time in lifting rates to more ‘normal’ levels. It knows that it has time on its side. Other major central banks haven’t started lifting rates yet and global jitters still remain. Meanwhile, at home inflationary pressures continue to ease. Add in the continued strength of the Aussie dollar and it’s clear that the Reserve Bank hasn’t got a defined month-by-month plan to lift rates.
• While consumers are confident, they remain cautious about spending. And with interest rates up again, that hesitancy to spend will continue. Larger retailers are better able to withstand this period of consumer conservatism as there are limits to how far and how long smaller retailers can cut margins.
• Competition for domestic funds is expected to remain intense, representing attractive opportunities for savers.
• Ignore any stories about borrowers under pressure as a result of the latest rate hike. The number of borrowers experiencing stress as a result of the latest rate hike would be extremely small. Most borrowers, as well as most lenders, have assumed substantial rate hikes into their planning and budgeting decisions.
Source Craig James, Chief Economist, CommSec
Reserve Bank Board meeting
• The Reserve Bank has lifted the cash rate from 3.75 per cent to 4.00 per cent. If banks fully pass on the rate hike then repayments on an average $300,000 loan would lift by just over $47 a month.
• The Reserve Bank has given no guidance on future rate decisions other than highlighting the fact that borrowing rates should “be closer to average”. Overall, that suggests rates have another 35-70 basis points to go.
What does it all mean?
• It’s important not to over-analyse the latest interest rate decision. The Reserve Bank has lifted the cash rate for the simple reason is that it is still too low for an economy that is getting back to normal. And if the economy continues to improve, then we can expect the Reserve Bank to lift rates further.
• Certainly the rate decision will be ‘live’ for the next few months. The Reserve Bank doesn’t want people to assume that it has tunnel vision – that is, it is fixated on some specific interest rate goal. But the Reserve Bank Governor has provided good broad guidance, noting that interest rates are around 50-100 basis points away from ‘normal’. CommSec has consistently noted that the cash rate will be between 4.50-5.00 per cent late in 2010 and there has been nothing of late to sway us from that view.
• The one point that should always be kept in mind when rates are rising is that just a third of the population is in the process of paying off home loans. Another third are renting and the remaining third of families own their homes. The home-buying population wouldn’t be shocked by the rate decision – many of the longer-term mortgagees would be well in front in their repayments. Renters would be unfussed by the rates decision with anecdotes that some landlords are offering incentives at present such as the first month free. And home-owners would be cheering the lift in interest rates with a view to higher term deposit rates.
• When the Reserve Bank is contemplating monetary conditions in the economy, it isn’t just thinking about the cash rate and interest rates applied by lenders. It also has to keep in mind the Aussie dollar. The Aussie dollar remains strong, hovering near US90 cents and at 25-year highs against the British pound. The high Aussie may be good news for travellers, but it is keeping the pressure on exporters and tourism-dependent regions.
Interest rate decision and past cycles
• The Reserve Bank Board has lifted the cash rate by 25 basis points to 4.00 per cent – the first rate hike since December last year. In October 2009 cash rates stood at a 49-year low of 3.00 per cent. After quarter percent rate hikes in October, November and December the cash rate stood at 3.75 per cent. Rates were left unchanged in February before today’s decision to lift rates again.
• In the last rate cutting cycle the cash rate fell to lows of 4.25 percent in December 2001. In the two previous rate cutting cycles, the cash rate fell to lows of 4.75 per cent. So rates are still historically low.
• If banks pass on the latest rate hike in full, the average bank variable housing rate would lift to 6.90 per cent. Still, it’s important to note that the mortgage rate has averaged 7.60 per cent over the past 5 years and 7.25 per cent over the past decade. Mortgage rates are still low – up to 70 basis points below longer-term averages.
• The Reserve Bank hasn’t given specific guidance, other than noting that further rate hikes lie ahead: “Interest rates to most borrowers nonetheless remain lower than average. The Board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process.”
What are the implications of today’s decision?
• The Reserve Bank is taking its time in lifting rates to more ‘normal’ levels. It knows that it has time on its side. Other major central banks haven’t started lifting rates yet and global jitters still remain. Meanwhile, at home inflationary pressures continue to ease. Add in the continued strength of the Aussie dollar and it’s clear that the Reserve Bank hasn’t got a defined month-by-month plan to lift rates.
• While consumers are confident, they remain cautious about spending. And with interest rates up again, that hesitancy to spend will continue. Larger retailers are better able to withstand this period of consumer conservatism as there are limits to how far and how long smaller retailers can cut margins.
• Competition for domestic funds is expected to remain intense, representing attractive opportunities for savers.
• Ignore any stories about borrowers under pressure as a result of the latest rate hike. The number of borrowers experiencing stress as a result of the latest rate hike would be extremely small. Most borrowers, as well as most lenders, have assumed substantial rate hikes into their planning and budgeting decisions.
Source Craig James, Chief Economist, CommSec
Tuesday, March 2, 2010
The billion dollar baby
Wednesday, 03 March 2010
ONE BILLION DOLLARS.
Yes that is $1,000,000,000…
The Australian property market continues to defy the odds, posting stellar auction clearance results over the weekend.
According to statistics from RP Data, Melbourne posted an auction clearance rate of 82.7 per cent.
Perhaps more impressive however, was the fact that the city managed to clear more than $1 billion in total sales over the weekend.
The most expensive property sold was a three bedroom home in Melbourne’s Toorak, which sold under the hammer for a cool $4.7 million. Ordinary two bed units, stock built in the 50’s, 60’s and 70’s, in the inner East and Bayside defied belief and sold at around $9,000 pqsm, a price usually reserved for off-the-plan acquisitions.
Sydney, Adelaide and Perth all managed to post above average record clearance results as well.
In Sydney, 77.6 per cent of properties were cleared over the weekend, while 68.3 per cent and 66.7 per cent were cleared in Adelaide and Perth respectively.
Overall, the national weighted clearance rate across Australia was 77 per cent.
RP Data’s national research director Tim lawless said the clearance rate was very strong, suggesting there are still plenty of buyers in the market.
“To provide some relativity, at the same time last year the clearance rate was 63 per cent across 1,335 auctions,” Mr Lawless told The Adviser.
“The important thing about auctions clearance rates is that they provide arguably the most timely barometer of real estate market sentiment available. A strong clearance rate suggests vendor and buyer expectations are reasonably in balance. Vendor price expectations are being met by buyers and buyers are active enough to provide a competitive bidding environment.
“For the time being it looks like auction markets and clearance rates are set to continue to their strong performance.
Based on the RP Data – Rismark Hedonic Home Value indices, values are continuing to climb with a 2.4 per cent gain in national home values over the three months ending January.”
According to Mr Lawless, vendors are continuing to place a large number of properties on the market, with the number of new listings hitting the market currently higher than at any time last year.
At the same time, the total amount of stock available for sale is actually lower than the same time last year, suggesting that buyers are continuing to outweigh sellers.
ONE BILLION DOLLARS.
Yes that is $1,000,000,000…
The Australian property market continues to defy the odds, posting stellar auction clearance results over the weekend.
According to statistics from RP Data, Melbourne posted an auction clearance rate of 82.7 per cent.
Perhaps more impressive however, was the fact that the city managed to clear more than $1 billion in total sales over the weekend.
The most expensive property sold was a three bedroom home in Melbourne’s Toorak, which sold under the hammer for a cool $4.7 million. Ordinary two bed units, stock built in the 50’s, 60’s and 70’s, in the inner East and Bayside defied belief and sold at around $9,000 pqsm, a price usually reserved for off-the-plan acquisitions.
Sydney, Adelaide and Perth all managed to post above average record clearance results as well.
In Sydney, 77.6 per cent of properties were cleared over the weekend, while 68.3 per cent and 66.7 per cent were cleared in Adelaide and Perth respectively.
Overall, the national weighted clearance rate across Australia was 77 per cent.
RP Data’s national research director Tim lawless said the clearance rate was very strong, suggesting there are still plenty of buyers in the market.
“To provide some relativity, at the same time last year the clearance rate was 63 per cent across 1,335 auctions,” Mr Lawless told The Adviser.
“The important thing about auctions clearance rates is that they provide arguably the most timely barometer of real estate market sentiment available. A strong clearance rate suggests vendor and buyer expectations are reasonably in balance. Vendor price expectations are being met by buyers and buyers are active enough to provide a competitive bidding environment.
“For the time being it looks like auction markets and clearance rates are set to continue to their strong performance.
Based on the RP Data – Rismark Hedonic Home Value indices, values are continuing to climb with a 2.4 per cent gain in national home values over the three months ending January.”
According to Mr Lawless, vendors are continuing to place a large number of properties on the market, with the number of new listings hitting the market currently higher than at any time last year.
At the same time, the total amount of stock available for sale is actually lower than the same time last year, suggesting that buyers are continuing to outweigh sellers.
Monday, March 1, 2010
Become Jack’s Strategic Partner in EQUINEX.COM.AU
March 2, 2010
Dear Strategic Partner
Consider for a moment, would you like to??
Add more revenue streams and greater profits with very little effort and investment?
Generate more clients and work within your own business?
Become part of a referral and opportunity flow network dedicated to delivering on client
outcomes?
If yes, then this is our invitation to you……..
Explore the opportunity of becoming a Strategic Partner with Equinex and to make a difference to both our clients and our collective businesses wealth creation success.
Who is Equinex?
Equinex is an Australian based company operating locally, regionally and nationally. We are passionate about achieving wealth and business creation results for our clients through leading edge strategies, opportunities and professional services. We provide a complete wealth and business solutions approach including
* Complete property solutions including advice, advocacy, property developments and investment opportunities.
* Access to all forms of finance and business expansion capital.
* Wealth Creation services, products and education.
* Business mentoring and also imagineering solutions (through our sister company HotIdeas)
What is the Equinex Strategic Partner Program?
The outcome when creating this initiative was to establish strategic relationships with other businesses and professionals who also want to make a difference to their clients/ contacts wealth and business creation potential and ultimately their lives by referring to our platform of services and opportunities. By becoming a strategic partner means being rewarded for your efforts, particularly in todays business environment where creating multiple streams of revenue is becoming essential to building the bottom line.
The guiding outcomes for the program is together to
* Create mutually beneficial relationships that attract, enable, and retain joint customers
* Identify new business opportunities with existing customers
* Develop lucrative opportunities through joint prospecting, lead qualification, and pipeline building
* Merge core competencies
Who can benefit from being part of the program
A potential strategic partner is simply a professional/business owner who has a database of clients and contacts with whom they have influence with and that on the strength of their recommendations will look at potential opportunities. Potential partners as an example can be,
* Accountants
* Lawyers
* Financial planners
* Finance brokers
* Business owners and consultants
The 3 reasons “why” for being a Strategic Partner
There are the 3 compelling reasons to partner with Equinex;
* 1 You add multiple revenue streams. By becoming a Strategic partner and referring clients to the Equinex service platform, you add new cashflow opportunities in addition to your core business. Also for some of our strategic partners, by their clients choosing to do business with Equinex creates more work for them, e.g. if you are an Accountant, Solicitor or finance broker, the chances are they will need more of what you do.
* 2 We will show you how to get more clients.We will share with you the latest high impact low cost marketing strategies which will market you more powerfully and generate new profitable clients for your business. We run a series of Business Creator workshops that you will be invited to that will provide the marketing ideas, the collateral and the strategies that you can apply in your business to generate greater revenue results.
* 3 We will share with you powerful business building ideas.You will receive further invites to a variety of workshops designed for business leaders on a variety of business creation subjects.
www.equinex.com.au
+61 3 9867 4450
Dear Strategic Partner
Consider for a moment, would you like to??
Add more revenue streams and greater profits with very little effort and investment?
Generate more clients and work within your own business?
Become part of a referral and opportunity flow network dedicated to delivering on client
outcomes?
If yes, then this is our invitation to you……..
Explore the opportunity of becoming a Strategic Partner with Equinex and to make a difference to both our clients and our collective businesses wealth creation success.
Who is Equinex?
Equinex is an Australian based company operating locally, regionally and nationally. We are passionate about achieving wealth and business creation results for our clients through leading edge strategies, opportunities and professional services. We provide a complete wealth and business solutions approach including
* Complete property solutions including advice, advocacy, property developments and investment opportunities.
* Access to all forms of finance and business expansion capital.
* Wealth Creation services, products and education.
* Business mentoring and also imagineering solutions (through our sister company HotIdeas)
What is the Equinex Strategic Partner Program?
The outcome when creating this initiative was to establish strategic relationships with other businesses and professionals who also want to make a difference to their clients/ contacts wealth and business creation potential and ultimately their lives by referring to our platform of services and opportunities. By becoming a strategic partner means being rewarded for your efforts, particularly in todays business environment where creating multiple streams of revenue is becoming essential to building the bottom line.
The guiding outcomes for the program is together to
* Create mutually beneficial relationships that attract, enable, and retain joint customers
* Identify new business opportunities with existing customers
* Develop lucrative opportunities through joint prospecting, lead qualification, and pipeline building
* Merge core competencies
Who can benefit from being part of the program
A potential strategic partner is simply a professional/business owner who has a database of clients and contacts with whom they have influence with and that on the strength of their recommendations will look at potential opportunities. Potential partners as an example can be,
* Accountants
* Lawyers
* Financial planners
* Finance brokers
* Business owners and consultants
The 3 reasons “why” for being a Strategic Partner
There are the 3 compelling reasons to partner with Equinex;
* 1 You add multiple revenue streams. By becoming a Strategic partner and referring clients to the Equinex service platform, you add new cashflow opportunities in addition to your core business. Also for some of our strategic partners, by their clients choosing to do business with Equinex creates more work for them, e.g. if you are an Accountant, Solicitor or finance broker, the chances are they will need more of what you do.
* 2 We will show you how to get more clients.We will share with you the latest high impact low cost marketing strategies which will market you more powerfully and generate new profitable clients for your business. We run a series of Business Creator workshops that you will be invited to that will provide the marketing ideas, the collateral and the strategies that you can apply in your business to generate greater revenue results.
* 3 We will share with you powerful business building ideas.You will receive further invites to a variety of workshops designed for business leaders on a variety of business creation subjects.
www.equinex.com.au
+61 3 9867 4450
Sunday, February 28, 2010
Another view of the "conflagration to come". The "next wave".
Burn the Banks
by Murray Dawes, Editor, Slipstream Trader
Last Thursday we watched the market open up 41 points on the back of a positive lead from the US markets. By 10:30am the high was in and the ASX200 turned down and sold off in a straight line for 100 points closing down 58 points at 4594.
Asian markets also came in for a belting with Japan down 2.4% and Hong Kong down 1.5% over the day and the release of Toll Holdings results at Midday only saw an acceleration of the selling pressure with Toll closing the day down 18% after missing earnings expectations by a long shot.
An article in the UK Telegraph stated that Greece's Deputy PM had lashed out at Germany over war-time atrocities and accused Italy of cooking its books. This seems like a fairly dumb thing to do when you are hoping that Germany might hand over some cash to help you out of the hole you've dug yourself.
But no, instead of grovelling the deputy PM said "They (the Nazis) took away the gold that was in the bank of Greece, and they never gave it back. They shouldn't complain so much about stealing and not being very specific about economic dealings". Nice one.
I'm guessing the Germans aren't going to be too impressed by the 'Nazi' reference.
The Australian Dollar also came under pressure which points to offshore funds possibly unwinding the carry trade which would have added to the selling pressure here.
The most interesting thing I read this week was about the beginnings of capital flight out of Greece. According to the Wall Street Journal, wealthy Greeks are moving their cash out of Greece and sending it offshore due to their fear of increased government scrutiny on assets and the possibility of a run on the banks should Greece be forced to go cap-in-hand to the IMF.
$8 Billion Euro has moved out of Greece to accounts abroad since December, which is a substantial chunk of the $30 Billion Euro under management in Greeks private banks.
I'm thinking this is probably not a good sign...
Also in Greece the general strike has spilled over into violence, with clashes between hooded youths and riot police in Athens. Chants of "burn the banks" were heard. All of this before Greece has even started tightening their belt.
In other news during the week we have seen American consumer confidence fall off a cliff and new home sales plummet 11% on the month in the U.S. This fall is due to the end of the $8,000 credit given to home buyers. Sound familiar?
This news is not the sign of an economy on the mend. The US markets were hit by this news but recovered later in the week unlike our market which has continued to sell off.
Technically, In the ASX200 The downtrend from January appears to be reasserting itself after retracing 50% of the sell-off in the last couple of weeks and this makes the next few weeks price action very important.
Check out - http://www.dailyreckoning.com.au/images/20100226asx200chart1.png
Our market has been in a long sideways consolidation for the past 5 months. We have had 2 false breaks of either edge of the range; with the most recent being the false break of the 4500 low from early November. This false break has seen a rally back to the midpoint of the range which I call the Point of control of the whole structure at 4700. This is a very important point and is often resistance or support before an attempt to break out of the range.
If the market were to turn back up and take out this 4700 area on good volume, you could be confident that the uptrend of the past year had reasserted itself and you could expect a move to the high of the distribution at 4950 and from there potentially a rally to new highs for this uptrend.
Conversely, if the market were to continue to sell-off over the next few weeks and then bust through the recent lows around 4464, there is the potential that this could signal the failure of the last 5 months range and also the end of the uptrend that has been in place for the past year.
The 10 day/35 day moving average is showing an intermediate downtrend for only the second time since the rally began a year ago. The first time was a false signal but this time may be different.
If we do sell-off below 4464 we could see some dramatic panic selling as any new long positions of the past 5 months are cleared out and the long term downtrend of the past few years rears its head. There is no reason why the market couldn't start a downtrend from there that heads towards the lows from March 2008.
Fundamentally I believe this is what should ultimately occur and with the news that's floating around at the moment there is no reason why this won't be the case.
Where the catalyst will come from to reignite the fear in the market is anyone's guess, but there are so many to choose from now, in my opinion it's only a matter of time.
For example the front page of the Wall Street Journal said that "Spain is the real test case for the Euro". With 19% unemployment and a couple of years of negative growth in a row it doesn't take much imagination to see that Spain is in a lot of trouble. The cracks in the Euro are getting bigger and bigger by the day.
China is the other big area of concern. Joint research by Holdways and Knight Frank showed the average prices of new homes in urban Beijing, Shanghai, and Shenzhen were up 66%, 68% and 51% respectively in November, from a year earlier. This sounds a lot like a bubble to me. And when it pops Australia is going to hear it loud and clear.
The US has a huge problem brewing in their commercial real estate. The Congressional Oversight Panel released a report into "Commercial Real Estate Losses and the Risk to Financial Stability". In it they said that "over the next few years, a wave of commercial real estate loan failures could threaten America's already weakened financial system. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present "underwater". Losses at banks alone could range as high as $200-$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010."
"A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty office complexes, hotels, and retail stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment. Banks that suffer, or are afraid of suffering, commercial mortgage losses could grow even more reluctant to lend, which could in turn further reduce access to credit for more businesses and families and accelerate a negative economic cycle".
When looking at the situation this way it's hard to come up with an argument about how the world is going to muddle through from here without suffering another crisis and another dip back into recession.
This rally has always had a time limit on it and we have said over and over again that it was due to government intervention anyway. The Keynesian game of borrowing more and more money to prop up the economy cannot possibly go on ad infinitum. None of the politicians will ever admit this of course because it is in their interests to borrow against your future to make themselves look like heroes and so they can act like they are "doing" something to help us.
But people, by and large, aren't stupid. They know what's going on. And the really clever ones are moving now to protect themselves before the music stops.
Murray Dawes
Editor, Slipstream Trader
for Money Morning Australia
by Murray Dawes, Editor, Slipstream Trader
Last Thursday we watched the market open up 41 points on the back of a positive lead from the US markets. By 10:30am the high was in and the ASX200 turned down and sold off in a straight line for 100 points closing down 58 points at 4594.
Asian markets also came in for a belting with Japan down 2.4% and Hong Kong down 1.5% over the day and the release of Toll Holdings results at Midday only saw an acceleration of the selling pressure with Toll closing the day down 18% after missing earnings expectations by a long shot.
An article in the UK Telegraph stated that Greece's Deputy PM had lashed out at Germany over war-time atrocities and accused Italy of cooking its books. This seems like a fairly dumb thing to do when you are hoping that Germany might hand over some cash to help you out of the hole you've dug yourself.
But no, instead of grovelling the deputy PM said "They (the Nazis) took away the gold that was in the bank of Greece, and they never gave it back. They shouldn't complain so much about stealing and not being very specific about economic dealings". Nice one.
I'm guessing the Germans aren't going to be too impressed by the 'Nazi' reference.
The Australian Dollar also came under pressure which points to offshore funds possibly unwinding the carry trade which would have added to the selling pressure here.
The most interesting thing I read this week was about the beginnings of capital flight out of Greece. According to the Wall Street Journal, wealthy Greeks are moving their cash out of Greece and sending it offshore due to their fear of increased government scrutiny on assets and the possibility of a run on the banks should Greece be forced to go cap-in-hand to the IMF.
$8 Billion Euro has moved out of Greece to accounts abroad since December, which is a substantial chunk of the $30 Billion Euro under management in Greeks private banks.
I'm thinking this is probably not a good sign...
Also in Greece the general strike has spilled over into violence, with clashes between hooded youths and riot police in Athens. Chants of "burn the banks" were heard. All of this before Greece has even started tightening their belt.
In other news during the week we have seen American consumer confidence fall off a cliff and new home sales plummet 11% on the month in the U.S. This fall is due to the end of the $8,000 credit given to home buyers. Sound familiar?
This news is not the sign of an economy on the mend. The US markets were hit by this news but recovered later in the week unlike our market which has continued to sell off.
Technically, In the ASX200 The downtrend from January appears to be reasserting itself after retracing 50% of the sell-off in the last couple of weeks and this makes the next few weeks price action very important.
Check out - http://www.dailyreckoning.com.au/images/20100226asx200chart1.png
Our market has been in a long sideways consolidation for the past 5 months. We have had 2 false breaks of either edge of the range; with the most recent being the false break of the 4500 low from early November. This false break has seen a rally back to the midpoint of the range which I call the Point of control of the whole structure at 4700. This is a very important point and is often resistance or support before an attempt to break out of the range.
If the market were to turn back up and take out this 4700 area on good volume, you could be confident that the uptrend of the past year had reasserted itself and you could expect a move to the high of the distribution at 4950 and from there potentially a rally to new highs for this uptrend.
Conversely, if the market were to continue to sell-off over the next few weeks and then bust through the recent lows around 4464, there is the potential that this could signal the failure of the last 5 months range and also the end of the uptrend that has been in place for the past year.
The 10 day/35 day moving average is showing an intermediate downtrend for only the second time since the rally began a year ago. The first time was a false signal but this time may be different.
If we do sell-off below 4464 we could see some dramatic panic selling as any new long positions of the past 5 months are cleared out and the long term downtrend of the past few years rears its head. There is no reason why the market couldn't start a downtrend from there that heads towards the lows from March 2008.
Fundamentally I believe this is what should ultimately occur and with the news that's floating around at the moment there is no reason why this won't be the case.
Where the catalyst will come from to reignite the fear in the market is anyone's guess, but there are so many to choose from now, in my opinion it's only a matter of time.
For example the front page of the Wall Street Journal said that "Spain is the real test case for the Euro". With 19% unemployment and a couple of years of negative growth in a row it doesn't take much imagination to see that Spain is in a lot of trouble. The cracks in the Euro are getting bigger and bigger by the day.
China is the other big area of concern. Joint research by Holdways and Knight Frank showed the average prices of new homes in urban Beijing, Shanghai, and Shenzhen were up 66%, 68% and 51% respectively in November, from a year earlier. This sounds a lot like a bubble to me. And when it pops Australia is going to hear it loud and clear.
The US has a huge problem brewing in their commercial real estate. The Congressional Oversight Panel released a report into "Commercial Real Estate Losses and the Risk to Financial Stability". In it they said that "over the next few years, a wave of commercial real estate loan failures could threaten America's already weakened financial system. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present "underwater". Losses at banks alone could range as high as $200-$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010."
"A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty office complexes, hotels, and retail stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment. Banks that suffer, or are afraid of suffering, commercial mortgage losses could grow even more reluctant to lend, which could in turn further reduce access to credit for more businesses and families and accelerate a negative economic cycle".
When looking at the situation this way it's hard to come up with an argument about how the world is going to muddle through from here without suffering another crisis and another dip back into recession.
This rally has always had a time limit on it and we have said over and over again that it was due to government intervention anyway. The Keynesian game of borrowing more and more money to prop up the economy cannot possibly go on ad infinitum. None of the politicians will ever admit this of course because it is in their interests to borrow against your future to make themselves look like heroes and so they can act like they are "doing" something to help us.
But people, by and large, aren't stupid. They know what's going on. And the really clever ones are moving now to protect themselves before the music stops.
Murray Dawes
Editor, Slipstream Trader
for Money Morning Australia
Are we getting smarter with our credit ????
Savvy consumers shun ATMs, credit cards
Reserve Bank statistics
• Aussie consumers are being increasingly savvy with their finances. Cardholders are using credit cards more often but paying off before the due date. And consumers are avoiding bank fees, preferring to get cash out on their debit cards with retailers.
• Transactions made with debit cards in December were up 10.8 per cent on a year ago, almost three times the growth rate of credit cards.
• The average outstanding balance on credit cards stands at a record $3250.60, up 3.3 per cent on a year ago. The number of purchases made on credit cards hit a record $21.1 billion in December, up 5.6 per cent on a year ago.
• Australians are using ATMs less often to withdraw cash, preferring to get cash out at retailers and other businesses. The number of cash withdrawals made at ATMs was down a record 7 per cent in December while cash-out only transactions with debit cards were up 7 per cent.
• On average each Australian used their debit cards a record 6.4 times in December. And we used our credit cards 10.6 times on average in December, slightly less than the record in December 2004.
What does it all mean?
• It may have been the US financial crisis. Or it may reflect better education. But Aussie consumers are being increasingly savvy with their finances. While consumers left more outstanding debt on their credit cards in December, they are more likely to pay off credit card debt without incurring interest charges or use debit cards instead. Aussie consumers are avoiding bank fees, using their own bank’s ATM or taking out cash at retailers. And credit card customers are clearly not keen on getting cash out on their cards.
• The average outstanding debt on credit cards is growing at the fastest pace in three years, although it still pales with growth rates set in previous years. Overall the average balance on credit cards is up just over 3 per cent on a year ago, but the average balance of cards accruing interest is rising at half that pace.
• An interesting trend is that Australians are using ATMs less often, preferring to get cash out with purchases at retailers. In December the number of withdrawals made at ATMs was down almost 7 per cent on a year ago. Not only was this the biggest drop on record but also the rate of decline has been accelerating since April last year. But cash-out only transactions made at businesses were up by just over 7 per cent on a year earlier.
• In part consumers may be using ATMs less often because of security fears. But the attraction of reduced fees and increased convenience may both be prompting consumers to get cash out when they are doing their shopping.
What do the figures show?
• Figures released from the Reserve Bank show that the average credit card balance stood at a record $3,250.60 in December, up $54.20 on November. The average credit card balance is up 3.3 per cent on a year earlier, the strongest growth in 13 months. And growth of a smoothed measure of credit card debt – the rolling 12-month average has lifted from a 15-year low of 0.5 per cent to 0.6 per cent in December.
• Of credit cards attracting interest charges, the average outstanding balance rose by just $7.40 to $2,303.00. The average balance accruing interest is 1.4 per cent higher than a year ago. The smoothed (rolling annual average) measure shows 1.3 per cent growth in the average balance – the slowest growth on record.
• The number of credit card cash advances fell by 2.7 per cent in November and was down by 15.3 per cent on a year earlier. Credit card advances have been consistently falling in annual terms for 32 months.
• The number of purchases made on credit cards rose by 15.2 per cent in December to stand 4.1 per cent higher than a year ago. And the value of purchases made on credit cars in December was up 5.6 per cent on a year ago.
• The value of purchases made on debit cards (excludes cash out) totalled a record $11.8 billion in December, up 6.9 per cent on a year ago. The number of debit card purchases was up by 11.1 per cent on a year ago.
• The value of all transactions made on debit cards hit a record $14 billion in December, up 6.8 per cent on a year ago. The number of transactions was up 10.8 per cent on a year ago.
• The number of withdrawals made at customers ‘own bank’ ATMs in December was up 3.7 per cent on a year ago. But withdrawals made at ‘other bank’ ATMs was down 19.2 per cent. All ATM withdrawals were down a record 6.9 per cent on a year ago.
• ‘Cash out’ only transactions made with debit cards in December were up 7.3 per cent on a year ago.
What is the importance of the economic data?
• The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
What are the implications for interest rates and investors?
• The new era of consumer conservatism continues. Aussie consumers no longer blindly put purchases on credit cards, preferring to use their own funds instead. Cardholders also appear to be active in keeping g fee and interest rate charges down, looking for their best options.
• Both banks and retailers must stay on top of the trends in consumer behaviour. Whether it was the US financial crisis that has caused consumers to change behaviour remains to be seen. But with unemployment falling and confidence levels near record highs, the conservatism of consumers is an interesting contrast.
• The Reserve Bank has highlighted the conservative behaviour of consumers. If spending growth remains soft in coming months then the Reserve Bank has more reasons to stay on the interest rate sidelines.
Source Craig James, Chief Economist, CommSec
Reserve Bank statistics
• Aussie consumers are being increasingly savvy with their finances. Cardholders are using credit cards more often but paying off before the due date. And consumers are avoiding bank fees, preferring to get cash out on their debit cards with retailers.
• Transactions made with debit cards in December were up 10.8 per cent on a year ago, almost three times the growth rate of credit cards.
• The average outstanding balance on credit cards stands at a record $3250.60, up 3.3 per cent on a year ago. The number of purchases made on credit cards hit a record $21.1 billion in December, up 5.6 per cent on a year ago.
• Australians are using ATMs less often to withdraw cash, preferring to get cash out at retailers and other businesses. The number of cash withdrawals made at ATMs was down a record 7 per cent in December while cash-out only transactions with debit cards were up 7 per cent.
• On average each Australian used their debit cards a record 6.4 times in December. And we used our credit cards 10.6 times on average in December, slightly less than the record in December 2004.
What does it all mean?
• It may have been the US financial crisis. Or it may reflect better education. But Aussie consumers are being increasingly savvy with their finances. While consumers left more outstanding debt on their credit cards in December, they are more likely to pay off credit card debt without incurring interest charges or use debit cards instead. Aussie consumers are avoiding bank fees, using their own bank’s ATM or taking out cash at retailers. And credit card customers are clearly not keen on getting cash out on their cards.
• The average outstanding debt on credit cards is growing at the fastest pace in three years, although it still pales with growth rates set in previous years. Overall the average balance on credit cards is up just over 3 per cent on a year ago, but the average balance of cards accruing interest is rising at half that pace.
• An interesting trend is that Australians are using ATMs less often, preferring to get cash out with purchases at retailers. In December the number of withdrawals made at ATMs was down almost 7 per cent on a year ago. Not only was this the biggest drop on record but also the rate of decline has been accelerating since April last year. But cash-out only transactions made at businesses were up by just over 7 per cent on a year earlier.
• In part consumers may be using ATMs less often because of security fears. But the attraction of reduced fees and increased convenience may both be prompting consumers to get cash out when they are doing their shopping.
What do the figures show?
• Figures released from the Reserve Bank show that the average credit card balance stood at a record $3,250.60 in December, up $54.20 on November. The average credit card balance is up 3.3 per cent on a year earlier, the strongest growth in 13 months. And growth of a smoothed measure of credit card debt – the rolling 12-month average has lifted from a 15-year low of 0.5 per cent to 0.6 per cent in December.
• Of credit cards attracting interest charges, the average outstanding balance rose by just $7.40 to $2,303.00. The average balance accruing interest is 1.4 per cent higher than a year ago. The smoothed (rolling annual average) measure shows 1.3 per cent growth in the average balance – the slowest growth on record.
• The number of credit card cash advances fell by 2.7 per cent in November and was down by 15.3 per cent on a year earlier. Credit card advances have been consistently falling in annual terms for 32 months.
• The number of purchases made on credit cards rose by 15.2 per cent in December to stand 4.1 per cent higher than a year ago. And the value of purchases made on credit cars in December was up 5.6 per cent on a year ago.
• The value of purchases made on debit cards (excludes cash out) totalled a record $11.8 billion in December, up 6.9 per cent on a year ago. The number of debit card purchases was up by 11.1 per cent on a year ago.
• The value of all transactions made on debit cards hit a record $14 billion in December, up 6.8 per cent on a year ago. The number of transactions was up 10.8 per cent on a year ago.
• The number of withdrawals made at customers ‘own bank’ ATMs in December was up 3.7 per cent on a year ago. But withdrawals made at ‘other bank’ ATMs was down 19.2 per cent. All ATM withdrawals were down a record 6.9 per cent on a year ago.
• ‘Cash out’ only transactions made with debit cards in December were up 7.3 per cent on a year ago.
What is the importance of the economic data?
• The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
What are the implications for interest rates and investors?
• The new era of consumer conservatism continues. Aussie consumers no longer blindly put purchases on credit cards, preferring to use their own funds instead. Cardholders also appear to be active in keeping g fee and interest rate charges down, looking for their best options.
• Both banks and retailers must stay on top of the trends in consumer behaviour. Whether it was the US financial crisis that has caused consumers to change behaviour remains to be seen. But with unemployment falling and confidence levels near record highs, the conservatism of consumers is an interesting contrast.
• The Reserve Bank has highlighted the conservative behaviour of consumers. If spending growth remains soft in coming months then the Reserve Bank has more reasons to stay on the interest rate sidelines.
Source Craig James, Chief Economist, CommSec
Tuesday, February 16, 2010
ASSETS AT RISK FROM "FRIVOLOUS CREDITORS"
Protecting Your Assets by Ken Raiss Director of Chan & Naylor Platinum
Thanks Ken for identifying this very real risk
Protecting your assets against frivolous creditors is increasingly becoming a common concern. It has been quoted that Australia is closely following the trend of USA litigation numbers with NSW, Victoria and Queensland only just behind California where 1 in 3 people in the USA either sue someone or are being sued by someone.
Traditionally people have used trusts to protect their assets. A trust is useful in this regard as the individual does not own the asset, it is owned by the trust. Therefore if the individual is sued they have no assets to lose. The individual controls the trust but has no ownership.
Typically assets were owned by either a company or trust (normally a discretionary trust or family trust).
The problem with a company, is the individual usually is the shareholder so they could lose the shares in a successful lawsuit and therefore the assets. The other problems with a company are it does not receive the 50% general Capital Gains Tax discount, it is inflexible on who can receive distributions, plus if the asset was negatively geared, the individual could not take advantage of the tax credits of the negative gearing.
The use of a discretionary trust gives asset protection and the ability to claim the 50% CGT General Discount, but again did not give any tax credits to the individual for negatively geared assets. Land tax is also a concern in that NSW does not receive the land tax threshold and Victoria only receives a $20,000 threshold.
Trusts and companies in the way they are typically used, do not allow an individual to receive the main residence tax concessions or any first home owner’s concessions which would apply if the family home is held in the individual’s name.
All the above can make things very confusing and without very specialised advice many people built up their wealth in their own names. With changing views on asset protection and estate planning, many people are now looking at how they own assets and are looking for strategies to give them asset protection. While it is true that people believe they will never be sued, or if so they have adequate insurance, the facts suggest a different answer in reality.
For assets to be acquired, the use of trusts can be an easy decision. But the question is “how do I now protect my assets which have been purchased in an individual or company name”. A simple solution is to sell them to a trust but that is not without a substantial cost. When you sell assets you pay tax on the profits and you would also need to pay stamp duty, which again is substantial on property. You may also need to refinance if you have debt as the “legal owner” of the asset changes and if the finance market is tight this refinancing may not be easily completed. So what do you do?
Chan & Naylor have developed four strategies that can assist clients wanting improved asset protection and estate planning, ranging from simple solutions for assets which are low in number or value ie: the family home and one investment property, to more complex solutions for larger asset bases where an individual wants both asset protection, estate planning and the ability to redirect who receives distributions. All four strategies do not trigger capital gains tax and in most cases does not trigger any stamp duty on the underlying assets.
Equity Shift
This solution allows an individual to shift the equity as opposed to the asset from an unsafe environment to a much safer environment. Assume the person has a family home with significant equity (market value less debt) and wishes to purchase an investment property. A properly arranged loan will allow the investment property to be purchased in a property investor trust, while still allowing the individual to claim any negative gearing and have the debt which would have been allocated to the investment property to the home. The interest on the debt, if structured correctly, is still fully tax deductible as the purpose of the loan is for investment. This leaves no equity on the home and shifts the equity into the property investor trust where it is protected. No CGT or stamp duty on the assets.
Equity Bank Trust
This trust structure and relevant agreements was developed to assist clients with a more substantial asset base including properties. The EBT takes on the role of a lender and places a second mortgage on your assets thereby reducing to nil your equity. It is your equity which a law suit goes after, not the asset, so the protection of your equity (net wealth) is the primary consideration. No CGT or stamp duty on the assets is triggered. Depending on the second mortgage documentation, there may be a stamp duty on the mortgage document, which is a small percentage of what would be the case on the asset.
Contractual Will
A will is essentially your wishes on how your assets are to be distributed on your death. If you are sued the will cannot protect your wealth. If a court action by unsecured creditors successfully takes your wealth then the will has nothing to pass on. The contractual will creates a legal binding obligation to move ownership of your assets and therefore your net wealth on death to a specially designed bloodline trust to ensure your assets stay within the family and not to in-laws etc. If sued prior to death, then it is this contractual obligation that is used to protect the assets in that you effectively have passed on the ownership of the assets at the time of the contract. No CGT or stamp duty on the assets. There may be a small stamp duty on the documentation depending on the location of the assets as different states apply stamp duty on documentation.
Absolute Entitled Trust
A more complex strategy for those with significant assets including business assets or the shareholding in a company operating the business. This strategy allows the transfer of assets to a trust without CGT and also maintains the pre CGT status of any assets, a very valuable benefit. This strategy creates asset protection, as the assets are now in a trust. Once in the trust any income or profits are capable of being directed to other individuals or trusts. Most states other than Queensland would have no stamp duty applied.
Main Residence Trust
As an additional strategy, clients who believe they are in a high litigation risk environment can purchase their family home in a trust and still receive the normal main residence tax benefits including zero stamp duty. In some states a second stamp duty may apply but this cost may be offset by the other advantages. Interest deduction on borrowed moneys used to purchase the property would normally not be deductible, but maybe, depending on the circumstances.
Care must be taken in the drafting and execution of these strategies and in particular the relevant claw back provisions of the bankruptcy legislations which would require a four year waiting period from the commencement of the strategy until asset protection is fully available. This time period is the window in which a receiver in bankruptcy can go back to unravel any strategy. Appropriate documentation should also be prepared and executed showing solvency statements and the confirmation that there are no potential litigations pending. The cost of the various strategies must also be considered against the benefits.
If you want to discuss any of the strategies please contact Chan & Naylor on 02 9391 500 who will arrange a suitable time to meet with one of our team.
Disclaimer
The above is general information only and is intended as educational material. Chan & Naylor nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives.
This article was written by Ken Raiss Director of Chan & Naylor Platinum
Thanks Ken for identifying this very real risk
Protecting your assets against frivolous creditors is increasingly becoming a common concern. It has been quoted that Australia is closely following the trend of USA litigation numbers with NSW, Victoria and Queensland only just behind California where 1 in 3 people in the USA either sue someone or are being sued by someone.
Traditionally people have used trusts to protect their assets. A trust is useful in this regard as the individual does not own the asset, it is owned by the trust. Therefore if the individual is sued they have no assets to lose. The individual controls the trust but has no ownership.
Typically assets were owned by either a company or trust (normally a discretionary trust or family trust).
The problem with a company, is the individual usually is the shareholder so they could lose the shares in a successful lawsuit and therefore the assets. The other problems with a company are it does not receive the 50% general Capital Gains Tax discount, it is inflexible on who can receive distributions, plus if the asset was negatively geared, the individual could not take advantage of the tax credits of the negative gearing.
The use of a discretionary trust gives asset protection and the ability to claim the 50% CGT General Discount, but again did not give any tax credits to the individual for negatively geared assets. Land tax is also a concern in that NSW does not receive the land tax threshold and Victoria only receives a $20,000 threshold.
Trusts and companies in the way they are typically used, do not allow an individual to receive the main residence tax concessions or any first home owner’s concessions which would apply if the family home is held in the individual’s name.
All the above can make things very confusing and without very specialised advice many people built up their wealth in their own names. With changing views on asset protection and estate planning, many people are now looking at how they own assets and are looking for strategies to give them asset protection. While it is true that people believe they will never be sued, or if so they have adequate insurance, the facts suggest a different answer in reality.
For assets to be acquired, the use of trusts can be an easy decision. But the question is “how do I now protect my assets which have been purchased in an individual or company name”. A simple solution is to sell them to a trust but that is not without a substantial cost. When you sell assets you pay tax on the profits and you would also need to pay stamp duty, which again is substantial on property. You may also need to refinance if you have debt as the “legal owner” of the asset changes and if the finance market is tight this refinancing may not be easily completed. So what do you do?
Chan & Naylor have developed four strategies that can assist clients wanting improved asset protection and estate planning, ranging from simple solutions for assets which are low in number or value ie: the family home and one investment property, to more complex solutions for larger asset bases where an individual wants both asset protection, estate planning and the ability to redirect who receives distributions. All four strategies do not trigger capital gains tax and in most cases does not trigger any stamp duty on the underlying assets.
Equity Shift
This solution allows an individual to shift the equity as opposed to the asset from an unsafe environment to a much safer environment. Assume the person has a family home with significant equity (market value less debt) and wishes to purchase an investment property. A properly arranged loan will allow the investment property to be purchased in a property investor trust, while still allowing the individual to claim any negative gearing and have the debt which would have been allocated to the investment property to the home. The interest on the debt, if structured correctly, is still fully tax deductible as the purpose of the loan is for investment. This leaves no equity on the home and shifts the equity into the property investor trust where it is protected. No CGT or stamp duty on the assets.
Equity Bank Trust
This trust structure and relevant agreements was developed to assist clients with a more substantial asset base including properties. The EBT takes on the role of a lender and places a second mortgage on your assets thereby reducing to nil your equity. It is your equity which a law suit goes after, not the asset, so the protection of your equity (net wealth) is the primary consideration. No CGT or stamp duty on the assets is triggered. Depending on the second mortgage documentation, there may be a stamp duty on the mortgage document, which is a small percentage of what would be the case on the asset.
Contractual Will
A will is essentially your wishes on how your assets are to be distributed on your death. If you are sued the will cannot protect your wealth. If a court action by unsecured creditors successfully takes your wealth then the will has nothing to pass on. The contractual will creates a legal binding obligation to move ownership of your assets and therefore your net wealth on death to a specially designed bloodline trust to ensure your assets stay within the family and not to in-laws etc. If sued prior to death, then it is this contractual obligation that is used to protect the assets in that you effectively have passed on the ownership of the assets at the time of the contract. No CGT or stamp duty on the assets. There may be a small stamp duty on the documentation depending on the location of the assets as different states apply stamp duty on documentation.
Absolute Entitled Trust
A more complex strategy for those with significant assets including business assets or the shareholding in a company operating the business. This strategy allows the transfer of assets to a trust without CGT and also maintains the pre CGT status of any assets, a very valuable benefit. This strategy creates asset protection, as the assets are now in a trust. Once in the trust any income or profits are capable of being directed to other individuals or trusts. Most states other than Queensland would have no stamp duty applied.
Main Residence Trust
As an additional strategy, clients who believe they are in a high litigation risk environment can purchase their family home in a trust and still receive the normal main residence tax benefits including zero stamp duty. In some states a second stamp duty may apply but this cost may be offset by the other advantages. Interest deduction on borrowed moneys used to purchase the property would normally not be deductible, but maybe, depending on the circumstances.
Care must be taken in the drafting and execution of these strategies and in particular the relevant claw back provisions of the bankruptcy legislations which would require a four year waiting period from the commencement of the strategy until asset protection is fully available. This time period is the window in which a receiver in bankruptcy can go back to unravel any strategy. Appropriate documentation should also be prepared and executed showing solvency statements and the confirmation that there are no potential litigations pending. The cost of the various strategies must also be considered against the benefits.
If you want to discuss any of the strategies please contact Chan & Naylor on 02 9391 500 who will arrange a suitable time to meet with one of our team.
Disclaimer
The above is general information only and is intended as educational material. Chan & Naylor nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives.
This article was written by Ken Raiss Director of Chan & Naylor Platinum
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