Accountants and Financial Planners
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Title Verification
Your first line of inquiry, not your last line of defence.
If you are an accountant, financial planner or SMFS auditor, you might not be fully compliant with regulations on how to treat, assess and verify a client’s property assets.
Research by Landgate indicates that many financial professionals do not verify a client’s assertion of property ownership and title details.
What if the client makes a mistake? How will you know?
Mistakes can lead to non-compliance of the Know Your Client provisions of the Corporations Code, the SMSF Audit Standards of the principle Duty of Care.
Other implications include: |  |
Incorrect tax records going back years
Wealth strategies being without solid foundations
SMSF earnings treated as individual earnings
Encumbered SMSF assets
Inadequately protected SMSF beneficiaries
Incorrectly represented business balance sheets
Flawed accounts prepared by your firm
Risk assessment (insurance) strategies based on impinged assets
Reduce your risk, increase your knowledge
Verify a client’s property ownership details within minutes with a copy of a Landgate
Certificate of Title
The quickest and easiest way to order a copy of a Certificate of Title is online with a credit cards.
Another option is to become an account customer by subscribing to My Landgate.
What does 'Title Verification' mean to you?
Title Verification requirements will vary according to your industry and professional requirement. The following is a guide only:
Many Australians underpin their wealth accumulation strategies with a negatively geared investment property. It is recommended that when an accounting practice enlists a new client who has investment property assets that a title search be undertaken to ensure the properties are in the name of the tax payer.
There have been instances where a property has been assumed to be in the name of the tax payer when in fact the client has been mistaken. It is further recommended that a periodic title search be made of the property assets to ensure title still resides with the tax payer who is claiming tax deductions against the property.
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SMSFs are still experiencing explosive growth. Unsurprisingly therefore, the ATO has a stated focus on this complex area. The ATO wishes to ensure compliance with the relevant legislation and assist in the protection of beneficiaries. Recent press from the ATO indicates that SMSF clients should expect to be audited.
It is well understood by accountants and financial planners that property assets held in an SMSF must be unencumbered. The way to verify clear title to the asset is to conduct a title search and check for caveats from lenders or others who believe they have some economic benefit in the asset.
A trust cannot appear as the title holder on a title. As a result most trustees register themselves as the title holder. To protect the beneficiaries of the trust it is therefore recommended that a caveat be placed by the beneficiaries on the title to protect their position. Alternatively, the beneficiaries can lodge a Declaration of Trust which will result in a registrar’s caveat being placed on the title.
These beneficiary requested caveats not only protect the beneficiaries but serve to inform the market that the title holder (the name appearing on the title deed) cannot use the property as security for borrowings – thus assisting in protecting third party creditors.
The Australian audit standards dictate that a title search be conducted annually. This ongoing annual review serves to protect the beneficiaries from unscrupulous behaviour (eg borrowing against the asset).
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“The ‘know your client rule’ is a cornerstone of financial planning. You must ‘know your client’ in order to be able to act in their best interests and to tailor your financial product advice to suit their individual circumstances.” (Financial Planning Association of Australia Limited)
Section 945a of the Corporations Act sets out the requirement for financial professionals to “know your client” before acting for them or advising them. This precept is a non-negotiable requirement of prudent and professional practice.
Financial planners are well versed in assessing the performance, diversification and appropriateness of a client’s managed funds and direct equities. In most cases a financial planner will not advise on property transactions except for perhaps the ability of the client to fund the asset and any investment concentration concerns.
Nonetheless, when developing wealth strategies it is incumbent on financial planners to verify that material assets are titled as per the client’s assertions. It becomes patently clear that should the client be mistaken then it is highly probable that the resulting wealth strategy is fundamentally flawed. (For example; property tax deductions being in an incorrect name or an asset being unknowingly encumbered.)
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When a financial planner has established and implemented a client wealth strategy, it is recommended practice to undertake an annual review process to ensure the ongoing appropriateness of the wealth creation structures and plans.
It is suggested that this annual review process include a title search of the key relevant property assets to ensure that unforseen encumbrances have not been lodged against them. This is particularly important in the case of SMSFs holding property assets.
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A client’s underlying asset base can be a key determinate in the level of personal risk coverage (insurance) a client may need. That is, if the client has an asset which they are prepared to liquidate in the event they cannot work, or they have relied on an asset to provide funds for their family on death, then the title to those assets becomes a critical factor in risk coverage considerations.
For instance, if the property assets are either not in the assumed name or the title is encumbered: the available funds to cover the risk event may be materially different from what is assumed by the client.
Take for example a property with an estimated value of $1m. If the title deed indicates that the property has a caveat on it, then access to the full $1m may be impinged. Indeed, the property cannot be transacted upon until the caveat has been lifted.
It is recommended that financial planners providing personal risk assessment and coverage (e.g. death, TPD, income protection, trauma insurance) verify the title to property which forms a part of the client’s asset base. Furthermore, it is prudent practice to check and verify title when conducting an annual review of the adequacy of personal insurance to ensure key assets have not become encumbered.
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The accounting profession plays a pivotal role in the economy by assisting with compliance and providing accurate and timely financial statements upon which proprietors, investors, creditors and employees may rely.
One of the fundamental precepts of accurate financial statements is the valid valuation and representation of balance sheet items. The title to key material assets should not be assumed.
It is strongly recommended that accountants who prepare financial accounts (especially when the accounts may be relied upon by 3rd parties, e.g. financiers and creditors) ensure the validity of title to property assets. Relying solely on client assertion as to accurate and unencumbered title may not represent prudent practice.
Self evidently, a major property asset recorded in an enterprise’s books which is not titled accurately will lead to the entire set of financial statements being a nonsense.
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The inter-generational transition of wealth in Australia over the next twenty years will be of an unprecedented magnitude. A vast proportion of this wealth will be represented by property assets.
When a client of a financial planner requests assistance with estate planning the cautious and prudent adviser is recommended to verify the title to the property assets. If you don’t own it, you can’t sell it (...and nor can you bequeath it!)
Concurrently, the adviser should review and consider any caveats or encumbrances on the property as these may have the impact of materially diluting the net benefit to the beneficiaries.
When a Power of Attorney agreement is prepared for a client who owns property assets the resulting documents should be lodged on Landgate’s Power of Attorney register. Having lodged the agreement then, in the event that the Attorney needs to deal on the asset, he or she will be in a position to do so.
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Disclaimer statement
Accountants and financial planners should use their own skill and judgement in deciding what forms of title verification services should be undertaken for their clients. Information contained on the Landgate web site is for reference purposes only and should not be considered exhaustive. Individual personal circumstances have not been considered. Legal advice should be obtained by accountants and financial advisers to ensure compliance with regulations and professional standards.