PROTECTING YOUR CROWN JEWELS

Bankruptcy, certain death, rising divorce rates. We live in risky times. Yet asset protection often doesn’t command the kind of attention showered on its sexier sibling, asset accumulation.

Asset protection is one of the foundations of a financial/ business plan, ensuring assets remain intact, and providing some security for a wealth accumulation strategy.

While ill fortune is virtually impossible to predict and some risks are difficult to avoid, planning ahead begins with a realistic assessment of risks and a handful of strategies to minimise them.

Risky Business
In an increasingly litigious world, the reality is that most of us are at risk.

• Directors, executives and small business owners are increasingly open to legal action from employees affected financially as a consequence of work-place dealings. With an average of more than 500 Australian companies going bankrupt each month, such legal action can be a real possibility.
• Professionals and sole traders (including tradespeople) can face multi-million dollar claims under liability and professional negligence law, and may be personally liable for their business debts.
• Property owners, motorists and those who employ domestic staff, such as cleaners and gardeners, may also be at risk of claims against them.

However, risks to assets can also arise from insufficient attention to risk when determining business structures, estate planning and succession planning for business owners.

Death & Taxes
Making a Will is a must. But for some people, a traditional Will can result in a significant tax burden for their spouse in the event of death.

Testamentary Trusts
Using a testamentary trust is one way to address this, allowing the trustee (who may be the surviving spouse) control of the assets, and over how they are distributed to other beneficiaries, such as minors, thereby enabling them to receive the more favourable adult tax treatment.

An additional advantage is that testamentary trusts can protect assets for the surviving spouse from future claims. For instance, with careful drafting, in the event that the surviving spouse remarries, these assets will not form part of their matrimonial property and will be protected from claims by the new spouse in the event of a split.

Succession Planning
Like a personal Will, a business succession plan provides control in business as a partnership or company. Business succession planning can ensure the surviving spouse or other beneficiaries are provided with funds from a compulsory sale or buy-out, rather than being saddled with an ongoing concern.

Estate Challenges
You can also risk losing control of assets in estate challenges if a dependant can establish that an order ought to be made for their maintenance, education or advancement in life.

In assessing claims, courts usually consider the applicant's needs; the adequacy of the amount provided by any Will; and the needs and amounts provided to other beneficiaries and applicants.

Estate equalisation strategies are an important part of a financial plan, as successful claims are funded from the deceased’s estate.

Business Structure
The structure under which a business operates can also have implications for the level of risk to their assets.

For example, suits for negligence can pose more of a risk to businesses run as partnerships (as partners generally are liable for acts of their other partners) than they do to businesses structured as a company, and it is well worth seeking specialist legal advice where appropriate.

Similarly, those who reinvest money and assets back into the business may do well to consider alternatives such as funnelling extra money into a trust or into superannuation, as these provide greater protection for personal assets.

Trusts have the capacity to protect assets, however this can depend on the level of control the trustee is empowered to exercise. Anyone who is both the trustee and a beneficiary of the trust may not have the same level of protection as they would otherwise.

Superannuation
Superannuation is one of the most effective asset protection tools, as it is protected from creditors up to the pension reasonable benefits limit (RBL).

With two members in a fund, an amount up to $2.3million can be protected from creditors and claimants. Self-managed superannuation funds in particular also offer:

• Tax concessions of 15 cents in the dollar (maximum)
• Estate planning benefits – nominated beneficiaries and even child pensions
• Relief from the oversight of the Superannuation Complaints Tribunal (SCT) umbrella
• Protection from estate challenges
• Retirement benefits such as the Small Business Capital Gains Tax (CGT) concessions
• Flexibility and control over investment choices

Asset Transfers
Transferring assets can provide some protection, however, relation back provisions in bankruptcy law allow the trustee in bankruptcy to claw back assets if:

• The asset was gifted within five years of bankruptcy for its then market value (exemptions may apply if it was gifted between two and five years of going bankrupt and the transferor was solvent)
• An asset was gifted at any time with the intention of denying creditors
• A bankrupt made preferential payments to creditors within six months of bankruptcy

A good offence is only half the game. We can provide the skills and knowledge to help you protect what you’ve worked hard to create.

Call Tony Martin or Geoff O’Neil

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