26/02/2016

There are many ways to structure your assets in order to protect them, and there are a great many legal mechanisms to achieve different scenarios – if you know where to look.

“It’s my money – I’ll do what I want with it!” – that’s nice in theory but if you have a specific arrangement that you want achieved - for example, your assets to be held only for your children and not an ex-spouse, or your assets not to be available to a creditor - then it is important to structure your assets with that in mind.

Now, you may be thinking, I don’t have a lot of money so this isn’t relevant to me just yet.  Think again. Just like in the tale of the three little pigs, your ‘house’ or asset pool should be protected no matter the value. It might be that your level of asset protection develops along with the asset pool. Nonetheless asset protection is best established before wealth accumulates. When planning how to build your wealth, plan how to protect it as well.

Keep in mind there are significant risks in carrying out asset structuring once a threat arises.

Step 1 – The big bad wolf is circling your house, but what is it after?
Different people will have different asset pools so it is important to identify what it is that needs protecting now and in the future. Some people might have investment portfolios with shares and property for example, some might operate their own business, some might have (or expect to have) a substantial inheritance. It is important to think about, at the outset, exactly what kind of situation you have or are dealing with because that will change the options available. And always think about what may come next!

Step 2 – Beware of the big bad wolf! But who or what is the big bad wolf?
The second thing to consider is exactly who, or what, presents as a risk to the asset pool. Some of the more common wolves are bankruptcy of the individual who holds the assets, creditors to a business that has become insolvent, relationship breakdowns of the asset holder or a beneficiary, and family provision claims in the event of the death of the asset holder.

The good news is that you may be able to protect your assets so the big bad wolf can’t blow your house down! For now, here are some things you might consider but we will go into more detail in the coming months.

Establishing a Discretionary Trust (or a Family Trust) to hold assets for the benefit of the beneficiaries of the trust. You are able to identify the classes of people to be included as beneficiaries, and can also make such determinations as the beneficiaries being ‘biological lineal descendants’. By doing this there is a discretion with the Trustee as to how, when and to whom any entitlement is paid. This can have a number of benefits, including if there are beneficiaries who are at risk of having their assets seized.
Tip: having a company as trustee for your Trust offers higher asset protection than individual trustees.

Entering into a Deed of Succession could be another way to protect your assets. This arrangement can set up how the control of your Discretionary (Family) Trust is to transfer in the event of your death or incapacitation. This document is more definitive than a memorandum of wishes and is made between parties who can be then held to it at a later stage.

Operating a business through a company of which you are a shareholder will offer some asset protection as well. With, generally speaking, your liability limited to the value of your shares. Directors of a company however have less asset protection as there are exceptions, including where employee entitlements or tax are unpaid or directors have offered personal guarantees.

Unit Trusts offer similar asset protection to a company. Although units are considered assets of the unit holders and as such are less protected.

A self managed super fund often gives a great deal of asset protection. However, keep in mind claw back rules and how they might apply if contributions are made in questionable circumstances. And of course assets in super must stay there until you’re entitled to withdraw them, generally when you turn 65.

Assets need to be protected and there are many different ways to achieve that protection.

Speak to us at Townsends Lawyers to discuss ways to utilise one of the various legal mechanisms available, or a combination, to ensure that your wishes eventuate.

Contact Townsends Business & Corporate Lawyers on (02) 8296 6222.