June 2004

Estate Planning is, in part, about separating assets from risk.

It may be too late to transfer assets into a safe environment (away from creditors and predators) once you are faced with the prospect of litigation or bankruptcy.

The anti-avoidance provisions of the Bankruptcy legislation allow assets to be clawed back by creditors in certain circumstances.

The anti-avoidance provisions essentially deal with two types of transactions:

• Undervalued transactions; and
• Transactions aimed at defeating creditors.

An undervalued transaction is one where property is transferred for no consideration or less than the market value of the property.

A transaction to defeat creditors is when assets are transferred with intention of preventing the assets becoming divisible among creditors or to hinder or delay the process of making property available to creditors.

If a person is declared bankrupt and a trustee in bankruptcy is appointed, that trustee, in certain situations, may set aside transactions. An undervalued transaction may be set aside within two years, if at the time of the transfer, the transferor was solvent. If the transferor was insolvent at the time of transfer then transactions dating back five years may be set aside. However, a trustee in bankruptcy may set aside a transaction entered into with the main purpose of defeating creditors at any time. 

If property or assets are transferred while you are solvent, and you are not declared bankrupt within two years, these transactions can not be set aside by a future trustee in bankruptcy.

The practical effect of the anti-avoidance provisions is that if you own assets in your name and you are sued, it is often too late to transfer assets to third parties in an attempt to reduce your net worth and protect those assets. So consider planning now!

To find out more about the authors you can read About Us

For more information or to make an appointment please Contact Us