Why Asset Protection is fundamental to proper Estate Planning

Is Asset Protection Relevant for Me?

We all work hard to accumulate wealth to fund our lifestyle and retirement and tp provide a head start for our loved ones but most people do not take adequate steps to protect their wealth from unforeseen events or third party claims,. People who carry on a business, have an “at risk” profession (such as Doctors, Accountants, Lawyers, Financial Planners, Engineers and other advisors) or engage on other activities that attract claims should especially ensure that they employ asset protection strategies as part of their Estate Plan.

However, in reality, any one of us could be at ricks of a claim or unforeseen liability that might result in financial hardship or even bankruptcy. Common examples include:

  • claims under the Family Law Act 1975 upon the breakdown of a marriage or defacto relationship
  • people who suffer temporary or permanent injuries and illnesses and who can not afford to continue pay everyday expenses and loans as they did not have adequate personal insurances, and
  • drivers without third party or comprehensive insurance.

Your assets are also at risk after your death as ‘eligible persons‘ may make a claim for provision from your Estate under the Succession Act 2006 if they have been left out, or not adequately provided for, in your Will.

What Assets are at Risk?

Assets that are at risk and which should be considered as part of a comprehensive Advanced Estate Planning strategy include:

  • Personally owned assets (e.g. real property, shares)
  • Unpaid present or future entitlements (e.g. Trust allocations and remainder interests),
  • Retained profits in trading companies
  • Business interests
  • Unsecured loans to companies, Trust and related persons, and
  • Future direct inheritances (i.e. Wills wit no Testamentary Trusts).

Asset Protection Strategies

The goal of all asset protestion strategies is to keep assets away from sources of potential claims or liabilities and to maintain adequate insruances to ensure that you have protection from unforeseen expenses.

Asset protection strategies are best implemented before an asset is acquired or business or other activity commenced, We, therefore, recommend that you consult us in relation to asset protection strategies appropriate for your Estate Planning needs when you are still considering acquiring an asset or starting a business or other activity.

The subsequent implementation of asset protection strategies needs to be considered carefully as significant adverse tax implications may be triggeres and often a compromise has to be struck between the competing interests of tax minimisation and asset protection.

Asset protection strategies can only practically be implemented while you are solvent, This is because assets transferred immediately prior to bankruptcy or for the specific purpose of defeating creditors can be set aside by a Trustee in bankruptcy in which case the asset will be available to satisfy creditor’s claims. The best time, therefore, obtain advice and implement appropriate asset protection strategies for you is sooner rather than later.

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By Sam Roberts,
Managing Director, Accredited Specialist (Commercial Litigation)

Sam Roberts