The Protector – Protecting your family home and family wealth from creditors

Key Points:

• Asset protection is crucial for safeguarding family wealth, illustrated by a recent court case where a property in a spouse’s name was accessed by creditors due to a tax debt.
• The Protector strategy involves setting up a leading member discretionary trust to ensure assets remain within the family and protected from creditors.
• Unlike existing trusts, this new trust type provides automatic removal of trustees facing legal issues, protecting assets from litigation.
• To protect assets, the strategy involves gifting net equity to the trust and registering a mortgage, ensuring the trust ranks before unsecured creditors.
• Implementing this strategy early is vital due to bankruptcy clawback provisions, which can reclaim transferred assets within four years.

Presented by: Saul Segal & Drew Pflaum

Transcript

G’day everyone, this is Drew here from Munro’s. Today we’re going to be talking about the Protector. It’s an asset protection strategy to help protect your family home and your family wealth. And I’m joined here today by Saul, one of our outstanding managers. I’ll get him to introduce himself very shortly.

Uh, let me just flick on the slides.

Uh, so asset protection is one of our key pillars here at Munro’s in servicing our clients. Uh, those key pillars being to help you start, grow and exit million dollar, if not multi million dollar businesses, uh, legally minimise your taxes along the way and safeguard your wealth. All in all, what we call experiencing success.

Uh, so today’s really about that safeguarding your wealth.

Uh, so it being a presentation that we’re giving publicly, uh, it’s not tailored to your specific circumstances. So it is just general information. Uh, so when you do need some tailored advice for your circumstances, please reach out to us and we can help.

So disclaimers out the way.

So once again, we’re talking about the protector today. And it’s, uh, really come about. It’s really topical at this moment because there’s actually a recent court case, which has come out. And so before so we can go and get into this, uh, what I’m going to do is, uh, uh, hand over to Saul. Saul can quickly introduce himself and then, uh, talk about, uh, this case at high level and then what we can do to protect our wealth.

Uh, so why you go. Saul, uh,

Thanks for the lovely introduction, Drew, and thank you to all our listeners for joining.

Um, I suppose the best way to get started on this case is there was a recent federal court case decision in the Commissioner of Taxation vs Bosanac, which were shocked the industry. Um, and it’s a very sobering reminder that we cannot take asset protection for granted.

Um, so what happened within this case, is that the court made a judgment against the taxpayer for unpaid taxes being Mr. Bosanac, and it had established that there was a $4.5 million property that was acquired in his wife’s name. Um, and they deemed in the court that that property was held 50:50. Okay, so what that has allowed the tax office to do is even though this couple has been divorced for four years, because of Mr.

Bosanac’s ATO debt, the tax office has been able to access 50 percent of his ex wife’s property. And this protective strategy that we’re going to put forward to you today will help you protect your wealth and safeguard it from creditors.

All right. So that’s the case there, Saul. So up next, we’ve got to talk about the actual asset protection strategy, which is called the Protector and what that actually means.

So can you run us through what the steps are and what’s, what would be created and such?

Yes, sure. Great question. So look, Drew, firstly, um, the, the protector is an asset protection strategy. It provides both asset protection and ensures that the assets are held for the beneficiaries of the trust as well as your family bloodline in the future.

What this does is when it is implemented, it ensures that your hard earned assets and wealth are kept in the hands of your family and it protects them from creditors in the case of bankruptcy or divorce. Um, what the protector involves is the establishment of a special purpose trust known as a leading member trust.

And within this trust, what it does is it locks in your family’s wealth for the long term.

Okay. So first step is to create a family protection trust. Um, and then, then move on. But can I ask you a question, Saul. If, so we’ve got a number of clients have already got, uh, Trust set up, um, or we ordinarily set up what’s called a discretionary trust, where the family protection trust is slightly different. Is there necessity to use the family protection trust or could we use one of these existing trusts? Or just simple, simpler, newer trust.

Yep. So great question. Um, we would advise our clients not to use an existing trust. The reason being is with an existing trust you don’t know what skeletons lie in the closet because there could have been a business that was run through that family trust. So if anything happened in the future there could be a litigation claim made against the family trust. We would advise it’s best to set up this clean skin entity, um, because you know that there’s no risk of creditors coming after the trust, suing the trustee and because you’re protecting your wealth you want to make sure that that’s separated from business and any other associated risks.

Uh, to answer your question with regards to setting up a normal trust versus this leading member discretionary trust, uh, it, it can be done through a normal trust, but we would advise against it. Um, the reason being is when you set up a leading member discretionary trust, what is written within the deed is there is a hard code writing to say that in the event that the appointor or trustee is in a position to get sued, they go bankrupt, or they’re going to be getting divorced or have dementia, they automatically get removed from that role. Now, the reason why that is good is because once they automatically removed from the role, what will happen is the next person in line will come in and take over their position. So when that person is going through the courts, um, they’re not going to have any assets in their name because they don’t control the trust anymore.

Okay. So excellent. So basically we want to set up that family protection trust. So what are the next steps? What do we need to do to actually have the asset protected?

Okay. So to have the asset protected, um, it would already be owned in your personal names. We don’t want to transfer that asset into the trust because that will create stamp duty and capital gains tax issues. So what we do is we gift the net equity of that asset into the trust.

So the trust owns the equity. So let’s say, you know, your family home is worth a $1million and you’ve paid off $500,000 of the mortgage, what we would do is you would be able to gift the remaining $500,000 into this family protection trust. Once the amount is gifted into the family protection trust, um, that amount then gets lent back to you and we register a mortgage over that amount on the PPSR. By doing that, what it allows you to do is, if anything happens to you, the family trust has got a mortgage over that equity, so they can call for it to be paid from you and they will rank before unsecured creditors.

Excellent. Okay. So that’s, that’s fantastic. But there are some issues around, um, clawback provisions. So do you want to run us through those?

Yep. So whilst these asset protection strategies are great. Everyone has to be aware of the bankruptcy callback provisions. And what these provisions are is if you transfer an asset out of your name into a related party, if that transaction happened within the last four years, and the person was solvent when the transaction happened, there is a chance that the trustee under bankruptcy can claw that asset back.

So we would advise that it’s best to try to implement these strategies as soon as possible because once the four year period has elapsed, then that asset is going to be protected indefinitely going forward.

Yeah, sensational. Thanks very much for giving us a quick run down there of the protector. Uh, Saul.

So that’s the protector everyone.

So, recent court case has highlighted, uh, the fact that, uh, just because an assets not in your name doesn’t mean your creditors don’t have access and there are ways to mitigate this, but you do need to be acting as early as possible.

So, if you want to, uh, some assistance and looking into whether this, uh, can suit your circumstances, just reach out to us.

And for everyone who may or may not be aware of who Munro’s are, and has just come across this presentation, we’re a top 1 percent ranked Australian accounting firm. Uh, if you want to have, uh, get some confidence in, in our service quality, uh, I suggest you have a look at our, uh, great collection of 5 star reviews as shown on Google.

And to reach out to us, you can email us at digital@munros.com.au. Give us a phone call (08) 94275200.

So thanks very much Saul and thanks for everyone for sticking around. See ya. Thank you.