Concentration risk is the increase in investment risk that comes about from not sufficiently diversifying your portfolio. In other words, too much money is concentrated in too few assets, sectors or geographical markets.

This can happen:

• Intentionally, because you have a strong belief that a particular share or sector, such as resources, banks or property, is likely to outperform in the future.
• Unintentionally, through asset performance. One or two shares deliver spectacular gains, making the entire portfolio more sensitive to moves in just a couple of assets. Or maybe shares as a whole enjoy a period of strong growth. Even though you hold a large number of different shares, the increased exposure to one asset class increases the risk to your portfolio.
• Accidentally, through poor asset selection. Nine out of the ten top companies that make up the MSCI World Index also appear on the top ten list of the main US index, the S&P 500. Investing in two funds, one that tracks the world market and one that tracks the US market won’t deliver the level of diversification you might expect.

Managing your risk

The solution to concentration risk is our old friend, diversification.

• Appreciate the importance of asset allocation, the art of spreading your money across the main asset classes of shares, property, fixed interest and cash. Ensure your asset allocation matches your tolerance to investment risk.
• Diversify within each asset class. Holding the big four banks is not a diversified share portfolio. If property is your thing, buying four one-bedroom apartments in the same building, or even in the same area, creates a huge concentration risk.
• Rebalance your portfolio to keep it broadly in line with your ideal asset allocation. This may create a tax liability, but often it’s better to pay some tax than to carry too high a level of concentration risk.
• Understand each investment and its role in your portfolio. Does share fund A hold similar shares as share fund B? Do they both have the same strategy?
• Get a professional opinion. Even if you are confident in making your own investment decisions it’s wise to run them by a licensed adviser.

It’s surprisingly common for investors to develop an emotional attachment to particular shares or properties they own. Concentration risk can also increase over time due to lack of attention. Your financial planner will assess your portfolio for hidden concentration risk and help you achieve a better balance of investments.

For more information about managing your investments, contact our office on (02) 4926 2300 or email success@leenanetempleton.com.au

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Life gets so busy and the months soon roll into years when suddenly you find that your finances are off track and you’re nowhere near achieving your goals. Instead of thinking it’s all too hard take a few moments to review the following tips. If you need a hand to implement your plans, we’re here to help.

Set your goals using the S.M.A.R.T. principle:

• Specific: What exactly do you want and how are you going to do?
• Measureable: If it can’t be measured, you can’t manage it.
• Attainable: Can it be achieved in your situation?
• Realistic: Is the goal beyond your capacity?
• Timeline: How long will it take to achieve the goal?

Learn from The Richest Man in Babylon
The foundation of this time-honoured book is to pay the most important person first – you! Preferably save at least 10% of your earnings, more if you can.

Manage your debt
Not all debt is bad, so make sure you know the difference. Debt that helps you improve an asset or increase an income is smart. 

It’s time, not timing
It is impossible to know when it’s the “right time” to invest. Start now and invest regularly to benefit from market ups and the downs.

Spread it around
Invest your money in a variety of assets. This will help to reduce the risk and increase the benefits .

Be patient
Try not to focus on daily financial reports. Worrying as your investments seesaw is not conducive to smart money management. Invest well and for the long term.

But stay focused
Regular reviews, say half-yearly, are a good idea. Revisiting results after a set timeframe reduces knee-jerk reactions that you may regret later.

Don’t become a statistic
Fraudsters are getting smarter. If you are promised something that seems too good to be true, it probably is. Always check with us before investing.

Refer to a professional
Managing money is an emotionally-charged exercise. A skilled financial planner will help to reduce your stress, so you can relax and enjoy the whole experience. If you need a hand, give us a call.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

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If you’re the eldest sibling in the family, or deemed to be the “most responsible”; if you’re seen to be a good friend by someone; or a fine upstanding citizen by others, chances are you will be asked to be an executor for someone’s will.

After you’ve enjoyed the warm feeling of being wanted, just pause for a moment and take stock of what it really means to assume this most important role.

You need to be aware that when the person dies, you will be required to spend a significant amount of time executing your responsibilities – and these can be onerous.

The actual functions will vary from one situation to another and, to some extent, depend on the surviving family members. However, the legally defined duties of the executor include:

• Arranging the funeral;
• Determining the assets and liabilities of the estate;
• Applying to the court for probate, if required;
• Determining what assets may need to be sold to pay outstanding debts – this may be defined in the will or by established legal definitions;
• Arranging the sale of all assets which are not to be directly transferred to the beneficiaries – including the home, investments, business interests and personal chattels;
• Lodging tax returns for the estate and the deceased;
• Paying the debts;
• Publishing a notice that you intend to distribute the remaining assets to the beneficiaries;
• Distributing the remaining assets to the beneficiaries according to the terms of the will.

For all this you may find yourself in the middle of family disputes and even subject to legal action from a dissatisfied beneficiary or creditor. If placed in this position, the executor needs to be able to manage their responsibilities as impartially as possible.

The executor can be held personally liable if a beneficiary suffers financial loss as a result of the executor’s actions or inaction, and in some instances, be legally liable for any losses incurred.

If, after considering all of this, you don’t think you can honour the person’s request and fulfill the executor’s role appropriately, it might be best to decline the offer.

If you’re feeling bad about not accepting, you could suggest your friend or relative engages a professional executor in the form of a Trustee Company or firm of solicitors. This will also ensure the executor outlives the person making the will.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

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Nearly everyone groans when June 30 pops up on the horizon. “Oh no, I’ve got to get my paperwork ready for my accountant”. Being organised for your annual tax return will help you reduce your stress levels and how much you pay your accountant, but we’re not just talking about financial paperwork here. What about all of the other documentation that is important to maintaining peace of mind for you and others if you’re not around to find it?

Here’s a checklist

It’s very detailed but if you lost your wallet or handbag how would you prove your identification? Is your computer the only place you keep email addresses? If your mobile phone was lost or stolen could you find all the stored phone numbers? What would happen to all of this information if you die or are incapacitated?

It can be overwhelming when you see how much you need to record but once you have set up a secure system, with everything registered or filed, you can relax and enjoy life.

Call (02) 4926 2300 or email us. 
Let the team at Leenane Templeton help with getting your paperwork and finances in order. Call us TODAY! 

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Basically, you can do whatever you like with your money while you’re alive. But what control do you have over your assets when you die? It’s an interesting thought that most people don’t like to dote on, however with more wealth being created through superannuation funds, it’s a thought that will require action at some stage – and the sooner the better.

It has been estimated that members of the baby boomer generation will pass about $600 billion to their children or grandchildren over the coming decades. This wealth will in some cases come in the form of family businesses moving to the next generation. In others, it might be more passive investments, such as shares, property and cash. 

Each of us might only have control over a small piece of this inheritance bonanza. Nonetheless, how much thought have you given to what it will mean to your beneficiaries and how they'll remember you? 

Preparing your legacy

The billionaire US investing guru, Warren Buffett, has some pretty clear views on the legacy he wishes to leave to his children. He has been quoted as saying that he wants to leave them enough money so that they will think they can do anything with their lives, but not so much that they can afford to do nothing.

The first step of course is to determine what assets you have that might form part of your financial legacy. Shares, property, superannuation and life insurance can be treated very differently under estate laws, so it's crucial to have this checked by your trusted advisers.

Next, you might want to think about the opportunities and values you want to leave to your beneficiaries. Do you want to "rule from the grave", or let them make their own decisions about how they tackle life's challenges?

Perhaps other bequests — to charities, for instance — will be your way of reflecting both personal gratitude and your preferred value system.

Who can help?

On the practical side, there are various professionals to help you to create your personal legacy. For example, enlisting a solicitor to draft your will and related documents is crucial. And we can advise you on superannuation and investment matters.

It might be a good idea to take time out to reflect on these important issues. Don’t wait until you’re sick or old to plan your legacy. Start now and plan to have the time of your life so you’ll have something memorable to leave behind!

Sources:
Musgrave, R. "Values based advice: How to create a living legacy", Australian Journal of Financial Planning (Volume 3, Number 1, 2008)
www.familymoneyvalues.com “What does family legacy mean to you?”

Call (02) 4926 2300 or email us. 
To discuss your financial future and that of your legacy, please do not hesitate to contact the team at Leenane Templeton. 

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“Isn’t estate planning all about looking after the assets of the wealthy when they die? What has estate planning got to do with being a single parent?”

Of course estate planning is about ensuring that there is an orderly transfer of assets between generations for the rich, but every person will leave something behind when they die, so estate planning is for everyone – rich or otherwise. The key aim of any estate plan is to ensure assets are transferred to support the right person(s), at the right time. And this is particularly relevant for single parents with young children. 

While the welfare of all children is a concern to parents, young children of single or widowed parents may be in a more vulnerable position for obvious reasons.

It’s not that difficult

Estate protection is not something the average single parent really wants to think about – or usually has time to do so – but there is good news. Making appropriate contingency plans need not be difficult or expensive – and the resulting peace of mind is worth the effort.

For such an important issue, it is best to seek appropriate professional advice. When seeking advice use the following questions as a starting point:

1. Is your will valid as a single parent? Is it appropriately expressed for the benefit of your children and up to date? Often people forget to update their will when personal circumstances change or they have no will at all. The results can be disastrous for your children.

2. Have you nominated an appropriate person(s) under the will to act as a guardian for your children? Is there a back-up option?

3. Who should be nominated as your personal legal representative (executor) of your will? The person selected should be someone who can competently and responsibly carry out your wishes. 

4. It may be wise to establish a testamentary trust under your will. That is, a protective trust that comes into existence upon death that provides financial support for your children until they complete their education.

5. Do you have enough life insurance so that the legal representative can clear any mortgage or other debts and provide for the living and education expenses of your children? Are the beneficiaries under your life policies appropriate?

6. Have your children (or perhaps the personal legal representative of your estate if a testamentary trust has been created and estate will be clear of debt) been included in any superannuation death benefit nomination?

7. Do all of your major assets have clear, current and unambiguous title? 

8. Should an enduring power of attorney be put in place nominating an appropriate person? This ensures that decisions can be made if you are incapable of looking after your financial affairs.

This list is not exhaustive nor will it be relevant to all situations, particularly where business ownership and other complicating factors come into play. However, it is a handy checklist for when you start talking to your adviser about these important issues.

Our financial planners are at hand to help with any questions you may have in relation to estate planning if you are a single parent. 
Call (02) 4926 2300 or email us. 

Estate planning for single parents needs to be taken seriously so let us help you! 

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In this article, we look at the liquidity risk associated with holding fixed property in SMSFs, as well as some of the factors to consider when investing in these types of assets.

Fixed property holdings in SMSFs can have distinct advantages:

– Capital appreciation of the property is taxed at an effective rate of 10 per cent, with a reduction to zero if the realisation occurs during the pension phase.
– Over recent years, the progressive relaxation of borrowing restrictions inside SMSFs also means that SMSF fixed property investments can be geared in certain circumstances – an attractive prospect for many investors.

Potential liquidity risk – and solution

The fallout from holding illiquid assets in an SMSF can be severe if a member dies or becomes totally and permanently disabled. This is because, in many cases, the property assets may need to be liquidated in order to pay the required benefit to the member or their family from the fund – which could not only take time to resolve, leaving the member and their family in limbo, but a ‘fire sale’ could result in a lower than market price for the property.  

Liquidity protection insurance enables a benefit to be paid to the member, or their beneficiary in the case of death, while enabling the SMSF to retain the property.

However, the question often arises about why conventionally structured life insurance would not be appropriate. In this situation, life insurance payouts are simply provided to policy holders or their estate – no provision is made for other members of the SMSF. 

Thinking about compliance

Liquidity protection insurance is often an attractive option for SMSFs holding property. However, this is a relatively new area, and there is uncertainty about the best way of structuring these arrangements – particularly around the compliance and tax requirements.

It’s important to understand how liquidity protection insurance is seen under the Superannuation Industry Supervision Act (1993), best known as SISA.

When considering liquidity protection insurance, the following compliance issues should be considered:

– Does it meet the sole purpose test? Liquidity protection insurance lies within the parameters of both the core and ancillary purposes, and therefore should meet the sole purpose test requirements.
– Does it meet investment strategy requirements? Liquidity protection insurance will usually contribute to satisfying these requirements, which obligate trustees to address liquidity issues when setting investment strategies.
– Does it meet the requirement to allocate premium expense on a fair and reasonable basis?  While this can be a grey area, age and health issues of the members need to be discussed openly and objectively up-front.

Equally, in the event of a claim, payments must be allocated on a fair and reasonable basis. To avoid possible dispute, the allocation methodology should be agreed and documented.

Tax considerations

It is necessary to consider tax deductibility of the premiums, the tax treatment of the claim proceeds, and whether or not the strategy could create reserves which may be treated as taxable contributions when appropriated for the benefit of members.

Action plan

This 10 step guide may help SMSF trustees deal with liquidity risks:

1. Complete an asset and liability review.
2. Consider other strategies to eliminate liquidity risk – e.g. payment of benefits in pension form only.
3. Identify the cover required if the insurance option is chosen to mitigate liquidity risk.
4. Select the methodology for allocating premiums and claims proceeds.
5. Review the SMSF trust deed to ensure that insurance in the proposed format is permitted.
6. Brief the SMSF auditor on your proposal.
7. Hold the trustee meeting to approve the strategy. Ensure that the outcome of this meeting is minuted.
8. Ensure that the statement of advice (SOA) prepared by your planner is consistent with other documentation.
9. Once agreed, ensure that the insurance is properly disclosed in annual member statements.
10. Review the insurance annually and update it where necessary.

Source: TAL, October 2014

For more information call Leenane Templeton on (02) 4926 2300 or email us.

If you wish to discuss SMSF liquidity and liquidity risk in SMSF please contact our specialist advisors.

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Figures from the Australian Bureau of Statistics showed that one in five families is a blended or stepfamily.

Today, the issue of passing assets to beneficiaries on death is becoming increasingly risky. As the numbers of blended and stepfamilies continues to rise it is important to ensure a Will reflects an individual’s wishes.

Due to this, families should consider incorporating a Mutual Will into their estate planning. Mutual Wills can be an effective tool in an estate plan for couples where one or both partners have children from pre-existing relationships.

They can provide a degree of certainty that the gifts in the Will pass to the intended beneficiaries after the death of one party.

A Mutual Will is a Will that includes a binding contract between two parties stating that:
1. Each party will leave their property to the mutually agreed beneficiaries
2. During their lifetime neither party will revoke or change their Will without the consent of the other party
3. After the death of one party the surviving party will not alter or revoke their Will to change the mutually agreed beneficiaries

If the surviving partner makes a new Will and departs from the original agreement, the effect of the contract means that the courts will impose a constructive trust over the property inherited by the survivor.

The new year is on the horizon. It may be a good opportunity for individuals who have not considered or adequately planned what would happen in the event that they were to pass away to take action.

Contact Leenane Templeton Wealth Management if you wish to discuss this matter further.

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Assets available to an SMSF include property, as well as shares and managed funds – however the usual superannuation rules continue to apply where the fund is purchasing an asset from a related party.

Some SMSF borrowing strategies

There are a number of strategies that enable individuals to take advantage of the rules.

Increasing the asset base.

Contributions rules place a limit on the amount of contributions that may be contributed to a fund. In addition, an investment in the SMSF borrowing arrangement is generally accounted for as net of liabilities. Where members are in a position to contribute assets such as property or shares this has the effect of enhancing SMSF borrowing.

Increased contributions.

Members may be able to transfer assets that they own into a fund, taking advantage of the borrowing rules. Members are then able to act as Trustee of the borrowing trust as well as the lender. The repayments made by the SMSF may then be contributed back into the fund by the member under the normal contribution rules.

Costs of finance

Financial products are readily available by lenders to take advantage of the rules allowing funds to borrow for investing.These products take into account the rules that only allow a loan to be secured against the investment it is funding, not total fund assets.

As a result of the higher risk profile, loans may attract a higher interest rate and require a deposit significantly higher than usually occurs with other standard investment loans. Trustees need to factor these risks and costs into their borrowing strategy.

The loan and the lender

SMSFs are able to use anybody as a lender, that is, they are able to obtain the loan from a bank, or other lending institutions, a member themselves, their business, a family member, company or trust. However while the law does not prevent the lender from being a related party, SMSFs must satisfy the sole purpose test and comply with existing investment restrictions such as those applying to in-house assets and prohibitions on acquiring certain assets from a related party of the fund.

Contact Leenane Templeton's professional staff to discuss how we can help you.

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1. Who should you appoint as your beneficiaries?

While you can leave your estate to pretty much anyone you like, you do need to be careful. Challenges against a Will often occur when people feel they haven’t been provided for fairly. If you think your Will is likely to be challenged, you may want to leave a letter of wishes. This is an additional document explaining why the Will has been drafted in the manner chosen and can be referred to when a claim is being defended.

2. What assets do you want your beneficiaries to receive?

While some people feel the need to specifically gift every asset they own, a lengthy list of gifts is usually not encouraged. Assets held at the time of making your Will (and their value) may differ significantly from the assets owned at the time of death. It can therefore be a good idea to only gift a small number of specific assets in your Will and assign a percentage of the remainder of the estate to each beneficiary.

3. Who should you appoint as your executor?

Your executor is responsible for a range of tasks, such as locating the Will, organising the funeral, arranging probate, collecting the assets, repaying debts and distributing the assets. When choosing your executor, make sure you select someone who is trustworthy, in tune with your objectives, and capable of performing this very important role.

While some people appoint a family member as their executor, a Trustee company can be a good alternative – particularly if your Estate is complicated and/or suitable friends or family are not available. A Trustee company provides expert administration and legal services and charges a fee, typically paid from your Estate, after your death.

4. Should you establish a testamentary trust?

A testamentary trust is a special type of trust that comes into effect upon your death, if you have included specific provisions in your Will. Because the Trustee owns and controls the assets, your estate can be protected from a number of potential risks and your beneficiaries can be provided for in a tax-effective manner.

Naturally everyone’s situation is different and we recommend you speak to one of our Financial Adviser's to find out more.

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