Asset protection is the process of structuring an individual's financial affairs to restrict the risk of liability and protect the individual's assets in the event of bankruptcy or personal litigation. Implementing asset protection strategies is imperative for professionals who may be exposed to professional negligence such as doctors, in particular surgeons, lawyers, dentists and accountants as well as property owners and business owners who may be exposed to substantial business risks. Effective asset protection incorporates measures such as ensuring inheritances are not directly received by at risk recipients, minimising the effect of potential claims arising from the end of a marriage and planning for the possibility of the failure of a business or investment.
Sound asset protection strategies require advanced planning techniques with the aim of placing an individual’s assets beyond the reach of future potential creditors generally through the use of trusts. A trust is a relationship where one party (the trustee), holds property for the benefit of another party (the beneficiary). Trusts create a separation of the ownership of the legal and the beneficial interests in the property. The beneficiaries have no specific fixed legal entitlement to the assets of a discretionary trust, unless so decided by the trustee. Therefore the assets of a discretionary trust may be afforded some protection.
In addition, it is imperative that any asset protection strategy involves carefully navigating through The Bankruptcy Act. Under the act, transactions may be declared void that would otherwise would have come under the bankrupt trustee's control and therefore be available to the benefit of creditors. As a general rule the bankruptcy trustee may void transfers of property if they were done within 5 years before the commencement of the bankruptcy. However, some payments are exempt and other transfers of assets are protected. Property transfers to related parties are usually protected it they occurred more than 4 years before the commencement of the bankruptcy and the debtor was solvent at the time of the transfer and remained solvent after the transfer.
Because there is a 4 year delay to protect assets, asset protection needs to be a continual process to minimise the assets that are at risk of bankruptcy.
We engage solicitors specialising in asset protection to ensure that our clients utilise the appropriate legal structure to protect their assets. In addition, we are happy to work with our clients’ accountants.
"Since engaging Chris Humphrey, I have benefited from his comprehensive financial, investment and tax knowledge. Chris and his team are always quick to respond to my queries and pro-active in updating me on any changes that may affect my financial situation. "
Dr Jason Stone