Legal Tip 302: Deliberate Litigation as an Asset Protection Strategy

Litigation can be used as a strategy by related parties as a way to improve asset protection, and even tax outcomes. Related entities can sue each other.


Example

Lisa doesn’t get any legal advice when her elderly mother decides to gift Lisa $2mil. After her mother dies a short time later Lisa then gets the advice and finds out that she could have received a much better outcome if she had not received the gift.

The solution, perhaps, could be for her Brother Bart, in his capacity as executor of the estate, to sue her. The money could be recovered into the estate and then it could pass out to the beneficiaries as per the will of the late mother. The will would have hopefully left Lisa’s share of the estate to a testamentary discretionary trust controlled by Lisa.

This could potentially get the additional tax benefits associated with TDTs and provide one of the highest forms of asset protection against bankruptcy and death of Lisa as she would be taken to have never received the money as a gift.

The basis of the claim to sue could be undue influence and/or unconscionability.

 

Who establishes the TDT? Benefactor or recipient? Or Executor?

 

The deceased

 

I would have presumed that if the Mother knew how to establish a TDT, she would have been aware of the asset protection, estate planning as well as consequences of ' gifting' a $2M property.

 

That was just a made up example!
In this example she did or didn't, it doesn't really matter, it can still be a viable strategy

 

Ha wow Terry this is like matrix-level case strategy stuff. Did this sort of thing come up on a matter of yours or something?

 

I just had a brainwave while reading a case on a gift being overturned:

BarNet Jade - Find recent Australian legal decisions, judgments, case summaries for legal professionals (Judgments And Decisions Enhanced)

 

My Bad, didn't mean to come across like that.

 

Not sure if you missed the point but sometimes it pays to sue friends. Not to be mean, but to allow for different outcomes.

I will try to think of another example.

 

Im actually reading the article now, this is some serious stuff, Thanks!