Many people are becoming increasingly concerned about the issue of asset protection, whether they be professionals, business persons or the ordinary person on the street. In fact, many people have the primary motivation of asset protection when establishing their estate plans.
The assets of an individual can be attacked through a variety of ways, including from creditors, the trustee in bankruptcy, estate challenges under the Family Provision Act as well as when a relationship breaks down. Relationship breakdown will be a relevant factor not only to people who are married but also to people who live in a domestic relationship.
Recent events have shown that medical professionals have been particularly at risk from legal claims. These claims also apply to other professional groups (ie accountants, lawyers, financial planners).
A director of a company has extensive exposure to liability. The sources of liability for a director are prescribed in a variety of legislation, including the Corporations Act, the Income Tax Assessment Act, the Commonwealth Crimes Act, the Trade Practices Act, as well as industrial relations, occupational health and safety and environmental legislation.
Many people are not aware that the definition of "director" under the Corporations Act does not only include persons who are listed as directors with ASIC, but also persons who have effective control of a company and persons who are de facto directors or shadow directors. For example, the courts have determined that an accountant whom the company consulted to improve the profitability of the company exerted the necessary control to be a de facto director, and therefore had exposure to liability as a director.
So if you are in a position that places your assets at risk, what can you do? Deciding on a strategy for asset protection really depends on the circumstances of the particular person. However, here are some general pointers.
Individuals may consider the following for possible protection against creditors:
- Avoid holding assets in the individual's name. The assets may instead be held by a spouse, company or discretionary trust.
- If assets are held in an individual's name, it may be possible to transfer the assets. However, stamp duty and capital gains tax issues should be considered.
- Corporate credit cards are often issued in the name of an employer or company, but generally the primary responsibility for payment of the debt is retained by the cardholder.
- Holding monies in a super fund up to Pension Reasonable Benefit Limits.
- Ensure assets are mortgaged or otherwise encumbered - for example to spouses, trusts or companies.
- Avoid personal guarantees or indemnities, or limit them to specific dollar amounts and/or time period.
However, before undertaking any of these possible protection measures, consideration should be given to the claw-back provisions of the Bankruptcy Act.
Finally, in a proper estate plan there are factors to consider other than yourself.
These factors will include what your parents propose to do with their estate plan. If a person has asset protection issues, the last thing that person may want is to receive a large inheritance in their own name. Similarly, your children may have the same asset protection issues and therefore a large inheritance in their own name would not benefit them.
You should also consider revoking any unnecessary powers of attorney. The vesting provisions of trusts should also be checked.
An effective estate plan is very important. Do not wait until it is too late! Contact us.