What should you consider as part of your Estate Planning Asset Protection and Wealth Management Strategy?
When commencing a new relationship, it is not uncommon to have concerns about wealth transfer and asset protection. People are often concerned that, should the relationship break down, their ex-spouse will be entitled to make a claim against their family’s assets, especially if one spouse brings more assets to the relationship, such as a house, and anticipates future acquisitions, like a substantial inheritance.[i] However, there are things you can do, as part of your estate and asset protection planning, to shield your assets from these risks.[ii]
Estate planning manages your affairs throughout your lifetime and after your death. Generally, most people associate estate planning with the following documents:
Will: specifies who will inherit and manage your estate (property and possessions) when you die;[iii]
Power of Attorney: appoints a person(s) to make financial and legal decisions on your behalf if you lose capacity (as well as health and lifestyle decisions in some states);[iv] and
Enduring Guardianship (NSW): appoints a person(s) to make health and lifestyle decisions on your behalf.[v]
However, what you may not know is, beyond these, there are additional measures you can take to protect assets, such as entering into a Binding Financial Agreement (‘BFA’), often known as a ‘pre-nuptial agreement’ (in American terminology), and utilising a Testamentary Trust Will.
Binding Financial Agreement
A BFA outlines a couple’s property interests and asset and debt division upon separation.[vi] Whilst it is commonly recommended that a BFA be agreed at the start of a relationship, a BFA can be established before, during or after a relationship.[vii]
It is important to know that there are strict requirements to ensure a BFA is binding (i.e. a legally enforceable document).[viii] For example, a BFA must comply with the requirements set out in the Family Law Act 1975 (Cth).
Testamentary Trust Will
Another asset protection mechanism is a Testamentary Trust Will. A Testamentary Trust is a legal entity created by a Will that specifies who owns and manages the assets (known as a ‘trustee’) and who benefits from, and receives, the assets (known as a ‘beneficiary’).[ix] A trust is created under the terms of the Will for the benefit of the beneficiary, and the trustee is responsible for overseeing the distribution of trust assets and income to the beneficiaries, in accordance with the wishes included in the Will.[x]
In the event a beneficiary’s relationship breaks down, the court will not generally consider trust funds as part of a property settlement, unless it is clear that the beneficiary controls and retains the right to the sole benefit of the trust property.[xi] However, this is not a ‘bulletproof’ asset protection vehicle, and it’s crucial that you obtain up to date legal advice, because depending on the specific circumstances of the case, testamentary assets can be considered as part of a property pool upon a relationship breakdown.
Next Steps
It is important to regularly review your estate planning documents, particularly should your personal circumstances change.
If you would like to discuss incorporating these documents into your estate planning, please reach out to our experienced legal team at office@jenkinslegal.com.au or via phone on (02) 4929 2000.
This article is not legal advice, and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.
[i] NSW Family Law Specialists (2024), ‘Binding Financial Agreements: Financial Agreements in Family Law Property Settlement Matters in Australia’, https://www.nswfamilylaw.com.au/binding-financial-agreements/
[ii] James Marshall of Executive Strategies (2024), ‘Protecting Family Wealth Amid Changing Dynamics: Strategic Estate Planning for Executives’, https://executivestrategies.com.au/2024/07/protecting-family-wealth-amid-changing-dynamics-strategic-estate-planning-for-executives/
[iii] NSW Trustee & Guardian (2023), ‘Wills, Estates and Trusts: A guide to planning for the future’, https://www.tag.nsw.gov.au/sites/default/files/2023-02/2302_Wills%20Estates%20Trusts%20Guide_WEB_FINAL.pdf
[iv] NSW Trustee & Guardian (2024), ‘What is a Power of Attorney’, https://www.tag.nsw.gov.au/wills/make-power-attorney/what-power-attorney
[v] Ageing and Disability Commission (Unknown Date), ‘Fact sheet: The difference between Powers of Attorney and Enduring Guardians’, https://ageingdisabilitycommission.nsw.gov.au/content/dam/dcj/ageing-disability-commission/tools-and-resources/for-the-community/The_difference_between_Powers_of_Attorney_and_Enduring_Guardians.pdf
[vi] Legal Aid New South Wales (2024), ‘Finance and Property: Binding Financial Agreements’, https://www.legalaid.nsw.gov.au/my-problem-is-about/my-family-or-relationship/finance-and-property#accordion-b8aa4381a5-item-1a33c6784d
[vii] Australian Family Lawyers (2024), ‘What is a binding financial agreement?’, https://www.australianfamilylawyers.com.au/information-centre/binding-financial-agreement
[viii] Family Relationships (2024), ‘Money and property’, https://www.familyrelationships.gov.au/separation/money-property
[ix] NSW Trustee & Guardian (2023), ‘Wills, Estates and Trusts: A guide to planning for the future’, https://www.tag.nsw.gov.au/sites/default/files/2023-02/2302_Wills%20Estates%20Trusts%20Guide_WEB_FINAL.pdf
[x] Monotti, W, Skilton, E & Jeremiah, R (2018), ‘Testamentary Trust Will Structuring’, Taxation in Australia, vol.53, n.1, pp.33-35, https://web-p-ebscohost-com.ezproxy.newcastle.edu.au/ehost/pdfviewer/pdfviewer?vid=0&sid=b4b12646-2a28-4d5f-9bf7-cdbe668cdb40%40redis
[xi] Go to Court (2020), ‘Are Family Trusts Protected from Property Settlements?’, https://www.gotocourt.com.au/family-law/family-trusts-asset-pool/.