Asset Protection

Put simply, it takes a long time to build wealth, but it can be lost very quickly, sometimes through one poor decision or mistake. Losing your wealth, particularly when you are in middle or later years, may be impossible to recoup. Protecting your wealth from loss is, therefore, one of the most important things that you can do. It is therefore critical to consult an asset protection lawyer to ensure your wealth is protected for you now and for future generations.

The earlier the better, because actions you take during an impending insolvency are likely to be unravelled. Many strategies involve the transfer of assets out of your name, for example, to a family trust, super fund or ‘safe harbour’ spouse. Under the Bankruptcy Act, the transfer of assets for less than market value (made without an intention to defraud creditors) must be made 4.5 years or more from the date of bankruptcy (this period can be reduced in some circumstances) otherwise it can be ‘clawed back’ and considered as part of your assets to be distributed in a bankruptcy.

Other strategies, such as binding financial agreements between partners, are also best considered at the outset of the relationship, and renewed on significant events occurring, such as the birth of children.

There are many reasons that beneficiaries in your Will can end up with significantly less, or nothing. One of the main reasons is an estate claim, brought by an eligible applicant after your death that you have not provided for adequately in your Will. Estate claims can be long and hard fought, and easily cost upwards of $300,000. Often such claims are paid for by your estate. If the claim is successful, your beneficiaries not only get less because wealth goes to the claimant, but also because the size of the estate is reduced by the legal fees.

Another more hidden risk is the reduction of the gift due to tax. For example, there is a death benefit tax on superannuation, for example, given to beneficiaries who are not deemed to be death benefit dependants. The concessional component is taxed at a flat 17% and any insurance in the super is taxed at over 30%. Assets that carry a CGT liability do not get CGT rollover relief on death when gifted in your Will to certain beneficiaries (such as foreign beneficiaries or non-tax deductible charities). Tax effective estate planning strategies need to be considered when preparing your Will to minimise these taxes.

A ‘gift and loan back’ strategy involves gifting a sum of money to a family trust by way of a deed of gift and then having the family trust loan the money back to you (by way of a deed of loan). Instead of a family trust, you can use a trusted, ‘safe harbour’ person with low business risk, such as a stay at home spouse. This process creates a loan owing by you to the family trust. The trust can call for the loan to be repaid at any time. A gift and loan back strategy can be a potentially useful asset protection strategy for people in high-risk occupations at risk of a legal claim or bankruptcy. Under the Bankruptcy Act, the transfer of assets for less than market value (made without an intention to defraud creditors) must be made 4.5 years or more from the date of bankruptcy (this period can be reduced in some circumstances) otherwise it can be ‘clawed back’ and considered as part of your assets to be distributed in a bankruptcy.

The strategy may also help to protect your estate from any Family Provision Application (FPA) that may be brought against your estate after your death (depending on what state you are living in when you pass away or where your assets are situated at the date of your death).

At Estate First, our experienced team of asset protection lawyers can assist you in implementing a gift and loan back strategy.