29/08/2016

Asset protection is a tricky business but one that it pays (quite literally) to be on top of.  As any professional gambler will tell you, it doesn't pay to play games with your assets.

In recent months we have begun a conversation about protecting your assets, what you would have discovered if you have been exploring this area with us is that there are a great number of things you can do. We thought the next thing you need to think about is how to play the smartest hand, without letting the dealer know what you have and by extension how they can leave you empty handed.

1.    A good defence is the best offence

It seems a little cliché we know, however the best way to master the game is to get ahead of it. Plan early - by this we mean that if asset protection is what you would like to achieve over the course of your life then it is important that the mechanisms you choose to use are put in place early.

In February we discussed “How to hold your assets to meet your needs” and this covered some of the mechanisms available for asset protection, and may well be worth a look (or another look) at if this is something you are interested in. The best preventative weapon in this sphere is knowledge, and armed correctly you will (in most circumstances) be able to achieve a really desirable outcome.

2.    Too late to the table

If you haven’t done anything beforehand, it is probably too late to do it after an issue has arisen. For example, if you can foresee an issue arising (ie, being made bankrupt) and you start to make uncharacteristic contributions to your superannuation fund, the transaction might be considered fraudulent and be clawed back by the trustee in bankruptcy.

It will be considered, by the trustee in bankruptcy, whether the asset would have formed part of the bankrupt estate if it had not been contributed to the superannuation fund. Along a similar thought process, if the purpose (not necessarily the sole or main purpose) of the contribution was to ‘protect’ the asset from the hands of the trustee in bankruptcy or another creditor then the transaction may well be clawed back into the bankrupt estate pool.

3.    Asset protection is not a lone wolf

Just because you have your asset protection plan in place doesn’t mean that you shouldn’t have other things, such as insurance for your various assets. A strategy doesn’t exist in isolation, or at least it isn’t mean to. Asset protection involves an element of common sense and taking reasonable steps to mitigate the risks to assets early on.

4.    Don’t mix business with pleasure

Keep your personal assets separate from your business assets. It may be well worth considering a discretionary trust to protect personal assets which you may wish to accumulate and use for the benefit of your family. discretionary trusts provide discretion to the trustee to distribute trust income and capital as they see appropriate. For business assets, perhaps a fixed unit trust is a better option. Options to consider are covered in our previous discussion mentioned above, “How to hold your assets to meet your needs”.

The key message to take away here is that the assets could be grouped according to their nature and protected from the outset using independent mechanisms.

5.    Too much of a good thing

The better asset protection plans share the control between you and your trusted professionals. Sometimes it pays to remember that you sought the services of these people for a reason - they often have specialist knowledge that can be of benefit to you. This is where balance is important.

Being informed is absolutely essential, and seeking a reputable team to help you achieve your desired structure is better done sooner rather than later. That’s where we can help to bring  that asset protection strategy to life.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.