Gifting property, including cash, shares or real property, is a great way to achieve asset protection under certain circumstances. If an at risk person has assets then those assets are at risk too. If the person becomes bankrupt those assets could be lost to creditors. So giving the assets away can prevent them from falling into the hands of creditors. But you wouldn’t want to give assets away to random strangers down the street! You might want to make gifts to related parties such as spouses, parents or trustees of discretionary trusts. This way the assets are still within the family group and a certain amount of control can be maintained. But there are also many laws to consider when gifting assets. There are a) Bankruptcy Act laws relating to defeating creditors, under market value transfers etc which allow the gifts to be undone b) State property laws also allow for clawbacks for defeating creditors – including future creditors c) Succession Act laws concerning gifts made before death – allowing clawbacks d) Family Law Act laws concerning gifts to defeat family law claims – allowing clawbacks e) Social Security Act laws relating to gifts and their effects on pensions f) Tax laws relating to CGT and deductibility of interest etc g) State Stamp Duty laws which may mean duty applies to gifts. An example of gifting for asset protection Bart sells a house and is cashed up. He makes a $1million cash gift to his parents. His parents then lend him $1mil to buy a new main residence with himself as the legal owner. The parents register a mortgage to secure their loan to Bart. Later if Bart becomes bankrupt the parents will be secured creditors and the house will largely be protected. But a trustee in bankruptcy will be likely to look at this transaction and may attempt to get it clawed back so that the $1mil could pass to creditors. Whether they could be successful at this will depend on the circumstances though. Generally, the longer ago the gift was made the stronger the gift will be from attack. Example of gifting for asset protection on death Homer has married Ned, and the children do no like Ned one bit. Since Marge’s death they have had a falling out with their father about his alternate lifestyle involving drugs, sex and scientology. Homer wants to leave the kids a small inheritance and the rest to Ned. He knows the kids can challenge the will and make a family provision claim. Homer transfers all his assets to Ned now, before he dies. The house is kept and will be left for the kids. Homer dies 4 years later; the kids get the house and Ned has already received his gifts. These gifts don’t form part of Homer’s estate because they were not owned by him at death. They won’t even be challengeable under a notional estate order because the gift was made more than 3 years before Homer’s death. Legal advice should be sought before any major gift is made, even to a related entity.