Case Study - EPSS - Asset Protection

Situation:

Luke and Elizabeth have so much in common - similar tastes, similar ambitions, similar political leanings and similar faith positions. They are both medical practitioners and although their paths have diverged in terms of specialisation, they both are in litigious areas of medical practice - Elizabeth is a gynaecologist and Luke is an orthopaedic surgeon. They have recently returned from a stint of living overseas and are about to buy their first Australian home. They want creditor asset protection, but they also want the capital gains tax ("CGT") main residence exemption, land tax principal residence exemption and even the first home buyer's grant.

Response:

At the meeting with Elizabeth and Luke it was explained that outside most of the assets in superannuation funds, there isn't really an Australian asset lifetime ownership choice that offers complete asset protection, particularly in the shorter term. It was also explained that personal ownership was necessary before the CGT and land tax exemptions would be available to them.

While, however, there is not complete asset protection for non-superannuation investments, it was suggested that using a non-fixed trust or company does greatly improve the prospect of asset protection for most people, particularly once the standard "clawback" period of 4 years had elapsed. It was recommended that the trustee of a newly established family trust could be gifted the savings that they had built up while overseas and provide them with secured loan funding. Over time, as their first mortgage to the bank (hopefully) decreases and the property (hopefully) appreciates, they could borrow further from the trustee of the family trust.

Outcome:

Elizabeth and Luke have purchased their new family home in joint tenants. They have a first mortgage to the bank and a second mortgage to the company trustee of their family trust - a trust funded by a gift (evidenced by a bank transfer and a Deed of gift). They have received their first home buyer's grant and qualify for the CGT and land tax exemptions. To complete their improved asset protection, their respective parents and Elizabeth's childless aunt have updated their Wills to include beneficiary controlled testamentary trusts.