August 25, 2016
Sooner or later, we all need to make a new financial decision. Whether opening a bank account, starting a superannuation fund, buying a house or setting up a business – there are decisions that need to be made. Most people, quite rightly spend a lot of time ensuring that it is a good decision and might compare different accounts or business models, the costs, the risks and the benefits. Often overlooked, however, is the choice of structure.
When deciding on structure, you are effectively making a choice on the legal ownership of an asset. Common structures include:
- Personal or Sole Trader
- Joint Names
- Tenants in Common
- Discretionary Trusts
- Unit Trusts
- Superannuation Fund
The reason why the structure is important is because they all have different advantages and disadvantages that impact on:
- The tax rate that applies and who pays the tax
- Who is responsible for making decisions
- Who can be sued in the case of harm or financial loss
- Who is the beneficiary of the underlying assets
- Whether the assets are protected from creditors
- Who gets the assets in the event of death
- Whether the assets will impact on eligibility for government benefits
Most people will tend to default to just having assets or businesses in their personal or joint names. However, the risk with this is that those assets are exposed and can be seized in the event of that person being sued or being involved in a bad business venture. This can result in people losing their homes. If, however, a business or investment is held via a separate company or trust, then often the risk is limited to those assets within the company or trust and personal assets such as the family home can remain safe.
Of course, with so many different types of structures available and with each structure having different advantages, it is best to discuss your situation and options with a professional and get the structure right from the outset. Getting the structure right can save substantial sums in legal fees and stress if things don’t work out as hoped and as the adage goes – prevention is always far better than cure.