Mortgage Broker Strathfield Tips: The Basics of Asset Protection for Doctors
Notwithstanding how much indemnity cover you have in place, you must be advised how to shield your assets in the event of litigation getting thrown at you by patients or staff.
The key to asset protection is to own nothing and control everything. Anyway, I’ll start with the basics.
So many couples buy their family home in joint names, which is rarely the best option.
Medical professionals who have life partners should normally have their home in their partner's name, given they’re less likely to be legally pursued.
Tina and I bought our new home 4 years ago and we made the decision to buy it in her name. If I wanted to, I could have put myself on title with 1% ownership. This would protect me from my wife increasing the loan or selling it without me knowing! Anyway, I didn’t bother with that.
PS: For those of you who regret having your home in your name (I know there’s lots of you), here are some options:
- You could fix half the problem by adding your spouse as a co-owner. It’s easy and can be done without incurring stamp duty.
- Gear up on it, that is, establish a credit limit of 90% against it to minimise the equity that is at risk.
Maybe buy an investment property in a fairly protected Unit Trust, but use your home to secure the loan! Clever.
- Sell your home and buy another in your partner's name (I know, that seems a bit drastic)
- Transferring the ownership to your partner is possible but unfortunately, it will incur full stamp duty unless it’s an official separation… again, a bit drastic :)
When it comes to investment properties, yes buying in a trust can provide protection against enforcement action or bankruptcy, but you need to be careful. Lawyers aren’t accountants and accountants aren’t lawyers.
Sometimes it’s a balancing act between tax planning and asset protection. Sometimes you can get the best of both!
3 years ago Tina and I bought the iChoice commercial premises here in Strathfield. We quickly set up a self-managed Superfund to buy the place so the asset is very protected - but it is at the same time so crazy tax effective.
My business claims essentially 47% of the $95,000 rent expense, but the rent earned in the SMSF is taxed at a flat 15%. So I’m $30,400 better off every year than if we’d bought in our personal names.
I’ll retire in 10 years at the age of 60. The tax rate in Super then changes from 15% to 0% so the $95K annual rent (in today’s dollar terms) will be a tax-free pension.
SMSF’s have their own Land Tax threshold too, this saves me another $10K PA.
Anyway… back to asset protection. Here are two important tips:
- Don’t buy investment properties in a company name, or you’ll lose the CGT exemption.
- Don’t buy investment properties in a Family/ Discretionary Trust. Land tax would be calculated on the full amount as there is no tax-free threshold.
Buying in a Unit trust is better. Also, your ownership in that trust will not be visible for someone who’s doing title searches trying to figure out if you’re worth suing. Of course, your ownership is noted in your accountant's register but a subpoena would need to be raised for someone to learn of your unit-holding.
Guys, I know that there’s so much to worry about with COVID and all. Besides the immediate economic and emotional pain being felt by those badly affected, I’m seeing what’s happening in the Australian market and the growing gap between the haves and have-nots, which I think is unfortunate.
Anyway, I put my hand up to be part of the solution 5 years ago but the good people of Drummoyne decided not to vote me into parliament … so you all continue to have me at your service.
I’m keeping really focussed on my role to help the thousands of medical professionals who put their trust in my team and I. Guiding your wealth creation with flexible, tax-effective lending structures is what I have done for 25 years and I love doing it. I have an amazing team of 7 awesome people who equally love what we do and the people we help; thus making our team one of the best Mortgage Broker Strathfield has to offer.
With fixed rates at 2.19% and banks like Westpac and ANZ (for the next couple of months anyway) paying you thousands to switch to them, now might be the time to shoot me a quick email.