Protecting the value of your assets:
Asset Protection is about sensibly organising your affairs while things are going well to minimise the risk to wealth diligently created or accumulated, in the event that things go wrong. In this sense, assets include but are not limited to, investment assets (held in portfolios, whether in superannuation or outside that structure).
In that context, asset protection is about reviewing the way you carry on your business, trade or profession; how you own your private investment and/ or business assets; and how to ensure that if the worst occurs, you do not lose everything you have worked so hard to accumulate.
How is asset protection achieved?
Asset protection is ultimately about defeating creditors in ways which are immune to legal attack. A ‘mis-timed’ arrangement (transfer) for this purpose will be caught – and rendered ineffective – under various legal provisions if either the transferee knew the purpose of the transfer was to defeat creditors in particular circumstances; or if it can be reasonably inferred that the transferee knew of that purpose.
Assets can be protected by a range of mechanisms, some of which can be affected post-acquisition of the asset. These include:-
- original acquisition in a special purpose structure or entity (e.g., a discretionary trust; a self-managed superannuation fund – or SMSF; a company, etc)
- transfer from existing ownership structure to another structure or individual; and in appropriate circumstances,
- covered by insurance policies.
It is important to get the ownership of assets correctly structured at the earliest opportunity. It will generally be too late to make effective defensive transfers of property once issues of solvency emerge. Because bankruptcy law is so technical, specialist advice should always be sought on the efficacy of any proposed asset protection structure.
Acquisition in a special purpose structure
Legal advice should be sought at the time of acquisition of any substantive asset (including establishing a business, or acquiring equity in a business). If done properly at the time of acquisition, expenses such as transfer costs, stamp duty and capital gains tax will be avoided.
Transfer between structures
This is not just a strategy for business owners. If you are likely to leave a reasonable estate: and particularly if any of your prospective beneficiaries are likely to have financial difficulties (or indeed, dealing with financial matters generally), you should pay particular attention to this wealth management strategy.
The law does not allow you to be the sole judge of who you wish to give your property to on your death. If your Will is challenged, the court may decide to give the person making the claim a large part of your estate against your wishes. Asset protection is also about organising your affairs to prevent this from occurring (in this context, estate planning is effective).
If contemplating asset protection through asset transfer between structures, specific legal and accounting (tax) advice should be sought: you will want the transfer to be effective, but also at the least cost. (Costs that are likely to be incurred include stamp duty, capital gains tax, valuation costs, legal and other advice costs – and probably a lot of your time.)
Continuum Financial Planners Pty Ltd can help…
The experienced advisers at Continuum Financial Planners Pty Ltd have skills in relation to planning asset protection strategies; and we have a network of specialist advisers to assist with their implementation: we can advise and prepare briefs to ensure your best interests are met – and the costs of the advice kept in check. If you believe your assets need protection, call our office on 07-34213456, or complete the Contact Us form on our website (and be assured of prompt attention).
(First posted in February 2010, the above article has been revised in March 2014; and refreshed in January 2015.)