Asset Protection Strategies

The laws that impact on asset protection strategies change constantly, as do an individual’s circumstances. As a result, strategies need to be regularly reviewed.

There are no right or wrong asset protection strategies, and no one strategy is better than another. Each strategy must be considered on the basis of:

• individual circumstances;
  
• risk profiles;
  
• diversity of income sources;
  
• current ownership structure;
  
• desired outcomes; and
  
• future expectations.

Strategy Options

Options available to effectively protect assets are many and varied. Some asset protection options available include:

• conducting a business via limited liability entities;
  
• alienating assets in asset holding entities such as discretionary trusts;
  
• transferring assets into the name of a relative or asset holding entity;
  
• holding assets and conducting a business in separate legal entities;
  
• extinguishing personal security and guarantees provided; and
  
• increasing superannuation contributions.

Pitfalls and Risks

In considering the options available, it must be noted that implementing asset protection strategies may have pitfalls and risks that need to be contemplated prior to proceeding with a particular course of action.

These can include:

• transfers of assets may be void if transferred for:
  
• less than valuable consideration;
  
• for the purpose of defeating creditors;
  
• at a time when the business or individual was insolvent; or
  
• within a specified timeframe of insolvency occurring.
  
• assets that accumulate in separate legal entities may not be protected if they accumulate purely as a result of physical or mental exertion of an individual;
  
• an individual may be liable for corporate debts in certain circumstances;
  
• costs such as stamp duty and tax may be encountered when transferring assets, and taxation exemptions and deductions may be lost (e.g. principal place of residence exemption) as a consequence of restructuring ownership of assets; and
  
• superannuation limits may be exceeded, therefore limiting the amount of protected superannuation.

The above is not an exhaustive list and other issues may also need to be considered when formulating an appropriate asset protection strategy. Addressing the pitfalls and risks that may impact on your strategy from the outset will ensure that if the need arises, you are more likely to succeed in protecting your assets.

Numerous questions are to be considered when addressing the most appropriate strategy to adopt, and to mitigate the potential pitfalls and the risks of asset protection strategies. Such questions need to be considered with future expectations, growth planning and funding, as well as other issues such as succession planning and revision of Wills. In all instances, timing is critical.

The best time to consider and review your asset protection strategy is now. There may not be a need to change the strategy, but you should view it as a health check for your future financial security.

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