We have been assisting various medical clients following the sale of their medical practice, often involving multiple millions of dollars.
Below I have outlined the considerations that we go through in developing a personalised plan.
Debt repayment
It makes sense to repay non-deductible debt (such as your home mortgage),as this provides a risk-free return that is quite attractive on an after-tax basis.
Should you repay all your investment related debt as well, or retain some leverage?
This can depend on a number of factors such as:
your timeframe to retirement
your attitude to debt in general
tax planning considerations
wanting to retain access to funding
It is important to consider your current position and future goals to make a decision regarding your debt repayment.
Asset protection and tax planning
You should consider entities that offer asset protection when investing the sale proceeds, such as:
Family trust
Investment bond
Superannuation
They typically also offer good tax planning options and benefits.
Liquidity
You will probably need to set aside funds to pay the associated tax liability, and would typically use short-term financial investments for this, such as a term deposit for example.
Depending on your investment timeframe, you could invest (part of) the funds for a longer timeframe, and select investments that match this longer-term timeframe.
Typically, you would end up with a spread of different sub-portfolios that match different events and timeframes.
Diversification
Once you have realised funds from one of your main assets (your practice), this presents a unique opportunity to diversify your wealth and reduce risk.
Given that asset allocation is the prime determinant of future returns, you need to ensure that your portfolio profile matches your return requirements and your risk profile.
Timeframe to retirement
The closer you are to retirement and super preservation age, the more compelling superannuation becomes as an investment vehicle. However, for younger clients,
Estate planning
Certain entities such as trusts and investment bonds offer more security and planning options in terms of making sure your assets end up in the right hands, and your succession decisions not being able to be challenged.
Goals and priorities
You may want to pre-fund school fees for your children, assist a relative with a lump sum gift, or donate part of the proceeds to charity.
All of these personal goals need to be carefully considered, and may also have changed as a result of the financial windfall.
It is important to take a holistic view of all these issues and develop a personalised plan on that basis.
If you would like to discuss your personal position, please contact me for a private and confidential consultation on 08 9381 2704 or Yves@affluenceprivate.com.au