People carry risk in their professional lives, often without contemplating how things might transpire in the event that they find themselves being personally sued for any reason.
It is well espoused that reward is intended to be commensurate with risk, but in the current COVID-19 situation, nothing seems to be quite as we once knew it to be.
The recent example of Newmarch House and the Ruby Princess are examples of what can go wrong in a workplace. It is yet to be seen how this might play out in terms of liability and responsibility. A recent article by Ian Freckelton QC outlined a number of issues that healthcare professionals might find themselves personally liable to being sued. Specifically, an employee in NSW must take reasonable care that his or her acts or omissions do not adversely affect the health and safety of other persons. So if an employee knowingly comes to work with mild COVID-19 symptoms and has not disclosed it to their employer, are they potentially personally liable for any loss caused? Obviously it will depend on the circumstances, but it is not beyond the realm of possibility.
The case of the aged care nurse in Rockhampton who kept working despite having COVID-19 symptoms and waiting on test results has now been referred to the Crime and Corruption Commission Queensland.
What we are seeing is professionals in all industries being faced with an increased risk of being sued. Claims under the Fair Work Act 2009 (Cth) and breaches of the respective state-based workplace health and safety legislation are increasingly carrying personal liability for employers. Undoubtedly, claims in these areas are likely to increase as unemployment rises and staff feel disgruntled.
This leaves medical professionals and their assets even more exposed to risk than ever. Asset protection is a significant consideration when any medical professional starts to accumulate assets and how to structure their affairs for the best possible protection is paramount in any plan to ensure those assets are protected for the future.
But what many medical professionals, business owners (and professionals generally) fail to take into account as an “asset” is any inheritance they are likely to receive from their parents or relatives. Often, these assets can be significant.
It is important to note that the potential for exposure is a factor that should be kept in mind at all times through a professional’s working life.
What is often seen though, is that the parents do not necessarily obtain the most comprehensive advice when they put an estate plan in place. For example, the common spouse or “husband and wife wills” are often drafted in the most cost-effective way, leaving everything to each other in the first instance, then to the children equally if they both die or on the death of the survivor. The reasoning behind it is generally because they “just want to keep things simple”. Unfortunately, if they have adult children in professional roles, things are often not as simple as they are aware.
Some examples below demonstrate how a lack of planning has seen inheritances forfeited.
Distributions prior to financial distress
In this example, years prior to a bankruptcy situation, an inheritance was left to an “at risk” professional. These funds were then used to purchase property or other assets which, after a later financial exposure and subsequent bankruptcy, vested in the individual’s Trustee in Bankruptcy and were realised for the benefit of their creditors.
For these reasons it is important that regardless of what the current situation may be, arrangements should be made when “times are still good” in order to mitigate potential future issues.
In the above situation, even if the at risk individual had transferred the funds, assets or property to someone else prior to bankruptcy to keep them “out of harm’s way”, the reality would be that the Trustee in Bankruptcy would most likely have been able to have clawed back those assets into the estate, pursuant to the voidable transaction provisions, in order to be realised.
Had the funds been left to the individual in a certain way, say through an effectively structured testamentary trust, those assets may well have been protected from falling into the hands of the Trustee in Bankruptcy.
Distributions during the term of bankruptcy
The provisions of the Bankruptcy Act allow for assets that devolve on a bankrupt during the term of their bankruptcy, “After Acquired Assets”, to vest in the Trustee in Bankruptcy, to be realised for the benefit of the bankrupt estate.
There have been times that after an individual has been made bankrupt, and before they are discharged, they receive an inheritance from a deceased estate. This inheritance, be it cash, property or otherwise, then automatically forms part of the bankrupt’s estate, pursuant to the vesting provisions. It is then up to the Trustee in Bankruptcy to realise and distribute the property in line with the provisions of the bankrupt estate.
In some situations, bankrupt individuals think that they can use these funds to make an “offer” to their creditors to try and come out of bankruptcy early. However, unless there are sufficient funds to pay out the estate in full (including the fees of the Trustee in Bankruptcy), this is unlikely to succeed as any such offer needs to present a proposal that is better than that which would otherwise be available in a bankruptcy situation, and as it stands the entirety of the inherited property would most likely already vest in the estate.
Again, a properly drafted testamentary trust could save these proceeds from falling into the hands of creditors.
Distributions after discharge
Ordinarily, an inheritance to which an individual becomes entitled after the date of their discharge from bankruptcy is not property which is available to a Trustee in Bankruptcy to realise for the benefit of the bankrupt estate. However, there are certain situations where this scenario can still be problematic. There have been instances wherein bankrupts have been automatically discharged from their bankruptcy, but who still owe an amount to their estates by way of outstanding income contributions. There is a mechanism for a Trustee in Bankruptcy to be able to, in effect, garnish from amounts owing to a bankrupt or to which a bankrupt might be entitled an amount equal to the outstanding income contribution liability. For example, if a former bankrupt still owes $150,000 in unpaid income contributions and subsequent to discharge becomes entitled to an inheritance from a deceased estate, whilst the trustee of the bankrupt estate cannot lay direct claim to the inheritance, they can apply to have the $150,000 garnished from any entitlement the bankrupt may directly have.
Family Law Act 1975 (Cth)
Often people don’t realise that commonly when they leave an inheritance to an adult child, without the proper structure in place, they are also leaving a share to their son- or daughter-in-law. This is because an inheritance will be property that is deemed to be part of the matrimonial pool and is accordingly divisible.
This advice is often met with shock, as parents often assume that any inheritance will go straight to their own child.
How to protect an inheritance from the Trustee in Bankruptcy or a marriage break-down
The first thing a person needs to do is to start having the conversation with their parents or anyone who they think will leave them an inheritance. This can be tricky for a number of reasons, including that most families don’t like talking about the prospect of death or dying. This seems to be even more the case as parents grow older. People will also be reluctant to appear opportunistic or entitled and so put off having any conversation. What is often seen though once these conversations start, is that people are shocked to learn their parents have actually been thinking about it more than they realise.
Secondly, it can be a good idea to involve other siblings in the discussion. Obviously the caveat on that suggestion is that this depends on the nature of the family relationships. However, involving siblings in the process can be a helpful step because it encourages transparency, and often it will also give them a different view of things and their own level of asset protection they did not know where possible.
Thirdly, people need to encourage their parents to find a good advisor who specialises in this area who can help them structure things appropriately. Again, involving siblings in that process can be good, as it can reduce the risk of allegations later, such as undue influence (surely everyone has heard about the adult child wheeling mum into the local solicitor’s office to change her will).
Finally, parents may not like the additional costs associated with having things structured properly. Mostly this is because they don’t understand that an inheritance can be so easily forfeited. But even if costs remain a sticking point, this could be something that perhaps the adult children may all want to invest in, given it is their potential future asset they are taking steps to protect.
Authors: Holding Redlich special counsel Nicole Treacey & SMB partner Alice Ruhe
 (2020) 27 Journal of Law and Medicine 590
 Workplace Health and Safety Act 2011 (NSW) s 28.
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.