Historically <Family Trusts> were often used as a legal structure as means of accumulating wealth, some of the reasons included that the assets were not legally owned by any one person, the assets were held in trust for a number of beneficiaries, determined by the rules of the trust and at the discretion of the Trustee. It was the discretionary element of a Trust that meant a creditor could not seek recovery of funds from a Trust. The reason for this is that the person the subject of the legal action was merely a discretionary beneficiary and as the person had no fixed entitlement to the funds in the Trust the creditor could not seek recovery of the trust funds. Now since the legal case law of Richstar [2006]; and Kennon v Spry; [2008] their has been some movement in this area and careful consideration of the trust formation needs to be adhered to and in particular to who are the named participants in the trust, <read more here>.

Superannuation is broadly considered one of the most safest asset protection vehicles available, in the same case above that detailed issues with Family Trusts (Kennon V Spry), this same case confirmed the advantages of using superannuation for asset protection purposes. However assets can be clawed back if the reason for the transfer is to defeat a bankrupts creditors.

The area of superannuation and bankruptcy has an established set of rules contained in the Bankruptcy Act 1966 (Cth) (“BA”) and the Superannuation Industry Supervision Act 1993 (SIS Act).

The most notable provision of the BA act is the 5 year claw back rule which means where a bankrupt transferred property at below market value within 5 years of becoming a bankrupt, the Trustee of Bankruptcy can claw back the assets from the superannuation fund and make those assets available to creditors.  Another provision states where the contribution to a superannuation fund was made to avoid creditors, that contribution will be void, and therefore recoverable by the Trustee of Bankruptcy.

Accordingly there are asset protection strategies that can be employed after an examination of a client circumstances and an understanding of these rules.

To find out why you should setup a SMSF read more on our dedicated <SMSF website> and <Call us for a consultation>.