We live in an increasingly litigious society. Litigators are becoming more and more aggressive. In fact, Australia is recognised as the second most litigious country in the world (the most litigious, of course, being the United States of America). People can become defendants in law suits, sometimes through no fault of their own, where substantial damages are sought against them. Quite often, insurance is either unavailable, or inadequate. It is not uncommon for the cost of defending a claim, let alone the cost of satisfying the claim if it is successful, to be financially crippling.

Also, Australia is among the most highly regulated countries in the world, with virtually all business activity being the subject of state and/or federal government regulation of one kind or another. Some regulation is so complex that maintaining total compliance at all times is virtually impossible. The penalties imposed for failing to comply with regulations can also be financially crippling.

Apart from these obvious risks, a person’s wealth can be placed in jeopardy from other risks, such as:-

• Claims made by a former spouse, or de facto partner, following a relationship breakdown.
• Claims made by disgruntled business associates or employees.
• Claims arising out of a person suffering a serious illness.

Risks such as these can arise out of circumstances that are neither foreseeable, nor involving illegal or self-destructive conduct. They can arise out of the everyday activities of people going about their business.

Everyone should have strategies in place to protect their wealth. However, some people are more obviously in need of wealth protection strategies than others.

These people include:-

• The very wealthy.
• Those in the public eye who have some degree of celebrity status. Often, people such as these are seen as prime targets for overzealous litigators and regulators.
• People who have a concern or suspicion that they may face some form of legal, financial or even medical difficulty in the not too distant future.
• People who own a business, or who are engaged in a professional occupation. Any business owner or professional practitioner is, whether they like it or not, at risk of being sued.
• We all know that you can’t take your wealth with you when you die. Wealth protection strategies are designed to prevent others taking your wealth from you while you are still alive.

In order to be successful, wealth protection planning must be a proactive exercise, not a reactive exercise. This means that wealth protection strategies must be developed and implemented before any of the risks discussed above actually arise. Generally, legislation (such as the Bankruptcy Act) will enable strategies to be challenged, and be liable to be set aside, if those strategies are implemented after a risk has arisen.

Importantly, there is no one-size- fits- all wealth protection strategy. Each person’s particular circumstances need to be carefully reviewed, and a wealth protection strategy developed that is appropriate for those circumstances.

However, here are some examples of strategies that often form part of a wealth protection plan:-

• Using companies and trusts to quarantine assets that involve an inherent degree of risk.
• Ensuring that active assets (such as a business) and passive assets (such as a share portfolio, or investment real estate) are owned by different entities.
• Giving inherited wealth to your beneficiaries, and receiving inherited wealth from your benefactors, through testamentary trusts.