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This article is authored by Simon Jasprizza of Wheelie Motivated Enterprises (WME). WME was
founded in 2005 by Simon Jasprizza, the company's Managing Director.
Simon is a T7/8 Paraplegic as a result of an accident in 1997. Simon is
a Chartered Accountant (CA), and has been involved in the accounting
and finance industry since 1992, having worked for an international
accounting firm, as well as high net worth individuals. There are not
many industries or businesses that Simon has not been exposed to
throughout his career.
The day you might be so lucky as to receive a compensation settlement, is the day the government turns its back on you.
You become ‘precluded’ from most government benefits, both financial and non-financial dependant upon your unique circumstances, for up to 96 years (on average 25–30 years).
The following are benefits you can no longer access:-
1) Disability Support Pension;
2) Carers Payment;
3) Mobility Allowance;
4) Rent Assistance;
5) PADP Benefits – Equipment & Supplies.
Also in most cases prior to receiving your lump sum compensation payment there are deductions that need to be taken out, such as:-
1) Medicare Benefits – for services used;
2) Hospital Expenses – up to $1,500/day for acute care;
3) Rehabilitation Costs – up to $850/day for specialized care;
4) Equipment Costs – Wheelchairs, hoists etc;
5) Advance Payments – in some rare cases, insurance companies will provide the claimant with upfront payments;
6) Legal Costs – quite substantial in most cases.
Most clients usually live on credit cards, loans from parents & friends and even bank loans (where the bank allows) and hence all of these liabilities need to be re-paid from settlement funds.
In addition, clients feel obliged to make payments to family members for the ‘pain & suffering’ they endured and also for personal care provided.
So a settlement (in or out of court), can suddenly become halved in the
hand of the client due to the above costs that have to be paid.
But money can by no means buy happiness or our health, and if it is not
properly and professionally managed, can result in erratic spending,
diminishing net wealth and ultimately depression and in some cases
suicide attempts.
The whole settlement process is distressing and time consuming. Once
the 3-5 year ordeal is over, the client needs new challenges to avoid
boredom & in some cases mental illness, which I believe affects
80-95% of Australians, not 60% (3 in 5) as published regularly.
Investing Funds
Success is attributable to 50% Information, 40% Planning & only 10% Execution.
By failing to plan, you are planning to fail.
The funds need to be protected and invested in a tax-effective manner;
responsibilities need to be delegated so that the client lives a
stress-free and happy lifestyle without a worry in the world, except
for the odd UTI.
At the moment you can only earn up to 3.5% on your money in a dedicated
on-line savings account or fixed term deposit with most banks &
financial institutions. But with an average tax rate of 25% and
Medicare levy of 1.5%, that return of 3.5% is reduced to 2.57%. But
what also needs to be taken into account is inflation. Assuming that
inflation runs at say 3%, in 12 months time when we clients receive
interest on their funds (assuming a 12 month term for a fixed term
deposit), general prices have increased by 3%, so the 2.57% in real
terms is reduced to a negative 0.42%. So in actual terms the client is
worse off in 12 months time. This is a common investment problem.
Hence, clients need to review other asset classes, such as direct
property (residential, commercial, industrial, rural), indirect
property (listed & unlisted property trusts), domestic shares
(Australian Stock Exchange – ASX), international shares, fixed interest
investments (both domestic & international) and private equity
investments. A diversified portfolio will reduce risk, and this
requires a properly qualified investment adviser.
Growth assets such as shares & property will historically speaking
increase over time (where investment horizon is a minimum of 7-8 years)
as well as paying income along the way, hence are much more attractive
and tax-effective then putting your money in a high interest earning
bank account. And with the 50% capital gains tax exemption on
investments held longer then 12 months, these growth assets are an
essential part of a client’s portfolio of investments.
The final key to the equation is the investment vehicles, such as
family trusts, self-managed superannuation funds (SMSF’s) &
investment companies. Theses vehicles provide asset protection to the
client, as well as being much more tax effective then investing funds
directly in the clients individual name.
Depending on individual circumstances, a client maybe able to invest
their compensation payment into superannuation fund, a withdrawal a
tax-effective pension for life.
Trust, Superannuation & Taxation Laws (both State & Federal)
change more regularly then we change our underwear, hence you need to
employ specialists to ensure you are receiving the best possible advice.
This article is also published at http://injuryadvicenow.blogspot.com/
This article only provides general information. Before making any
decision or taking any action that may affect your personal lifestyle
or financial situation, you should consult a professional qualified
adviser.
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