Legal Tip 149: Trusting others with your Asset Protection

Trusting others with your Asset Protection



I have seen a number of people who have set up asset protection strategies whereby they use other family members to own assets, control trusts or take mortgages.



Examples

• X gifts $1mil to Y who buys a property for X to live in.
• X gifts $1mil to Y, X buys the property and Y lends him $1mil and takes a mortgage over the property,
• X diverts his income to Y who buys property,
• X diverts $500,000 into Y’s superannuation fund for asset protection and tax reasons.

All of these can provide good asset protection for X in the event of X ending up bankrupt. Some may also provide asset protection on the breakdown of a defacto relationship or divorce.


But often little or no thought is given to things that could happen to Y. What if:

• · Y dies?

• · Y becomes incapacitated?

• · Y becomes Bankrupt?

• · Y gets divorced?

• · Y develops a gambling problem, or becomes a spender?

• · X dies before Y?

• · X becomes incapacitated?

• · X has a falling out with Y?

If Y dies Y might leave the assets to X as per their agreement, but Y’s will could be challenged or there could be a Family Provision claim against their estate. What if Y is a spouse and has children from a prior relationship. Y may be the mother of X, but X may have another brother.

If Y becomes incapacitated their attorney may take control of Y’s financial affairs. They may cause things to be done in detriment to X.

Y becomes bankrupt will mean the assets can fall into the hands of creditors.

Y getting divorced will mean the assets can fall into the hand’s of Y’s spouse. Y may not be married at the time of the original transaction, but Y could enter a relationship much later. Even older people enter into relationships.



The taxation, land tax and other issues also need considering.