Diana Clement: Avoid worst-case financial scenarios


Many personal financial disasters are completely avoidable. We think we’re 10ft tall and bulletproof. A little pre-planning can prevent awful disasters.

Those disasters come in many forms. The “new relationship” is a classic one where a partner can siphon off a lifetime of savings. Financial adviser Steve Morris of Trilogy Financial Solutions was involved in one case where a widow had her property in trust. She remarried to a good friend of her deceased husband with the blessing of the family. When the new husband’s business began to fail, he convinced her to use her trust to guarantee his business. As a settlor of the trust, the wife replaced a trustee with her new husband to help him get guarantees against the trust property to prop up his failing business. When it fell over, she was forced by his bank to sell one of her trust properties. Morris says in retrospect the family deeply regretted not agreeing to be trustees in the first place because they could have prevented her from losing the much-loved family bach.

The family of New Zealand man Jason Winter are still living with the consequences of him not signing a will in 1996. Morris, who worked closely with an estate company at the time arranged for a will to be prepared for the 28-year-old husband and father of one. “We were sitting around the swimming pool. I had the will with me, but Jason said: ‘Nah, I don’t want to think about this now’.” Shortly after that, the 28-year-old winemaker moved to Australia where he was one of 35 people murdered in the Port Arthur Massacre. “Tasmania had the most draconian estate planning laws in Australia at the time,” says Morris. As a result, Winter’s legacy, which included life insurance policies and other monies has been tied up at arm’s length in a trust. Research by Perpetual Guardian in 2017 found that 38 per cent of adults don’t have a will. The figure is probably not much different today.

Failing to take independent advice is another huge but avoidable mistake. In the late 2000s, Morris was contacted to give advice to an employee of one of the companies he provided superannuation advice to. The employee had bought a property through the now-disgraced Blue Chip Financial Services. He signed up to buy an apartment at considerably more than its market value thanks to dodgy valuations arranged by the company. He, like other victims, was convinced to use tame accountants and lawyers who papered over just how bad the deal was. On their advice, he claimed more than $80,000 in GST from the Inland Revenue, which the latter chased him for. The man who was previously debt-free had to declare bankruptcy. “When I first spoke to him, he said: ‘I am so devastated I felt like jumping off the building this morning’,” says Morris. Taking independent financial advice from an adviser of his own choice could have averted this tragedy, says Morris. This is good advice for avoiding scams as well.

Another common disaster is going guarantor. Parents sign a piece of paper to guarantee their children’s house, car and other loans. They often have no idea how far-reaching the legal documentation they sign is. They may be guaranteeing all future borrowing by the child and his/her spouse. In many cases, they are signing an agreement that the bank can sell their house or assets if the children don’t pay. It happens too often. Sadly, some parents are bullied into signing by children with nefarious intent. Advice from a mortgage broker and lawyer can help limit the extent of the guarantee.

Finally, if the deal seems too good to be true. It is probably a scam, but at best an incredibly poor investment.

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