Protect Yourself From Financial Predators!
As your accountant, one of our goals is to help you minimize the tax you pay while helping you increase the value of your business, assets and investments.
With that in mind, it is also important to us that your assets are protected from disgruntled family members, business risks and financial predators who could undo all the great work.
Creating an asset protection plan to minimise your risk is as important as building your asset portfolio in the first place.
Yet many Australians remain unaware of the significance of utilising asset protection strategies to safeguard those assets.
Insurance can protect you against some risk, but not all risk.
So it’s worthwhile equipping yourself with the various asset protection strategies available so you can safeguard your personal assets.
Isn’t asset protection just for the wealthy?
NO! Protecting your assets in any circumstance is in your best interest.
It is a way of safeguarding your personal assets from being used to meet a creditor’s claim.
Who Needs Asset Protection?
Business owners are typically the most vulnerable to losing their assets when things don’t go to plan, or a client decides to sue you.
If you have created your wealth through an asset portfolio under your name or your business, you are particularly vulnerable.
All businesses have risks.
Risks could include:
- Projects going wrong
- Dramatic market changes (eg Covid, trade tension stops or slow supply of building materials already committed to projects)
- Customers going out of business and unable to pay your invoices
- You become injured and unable to work
- Government changes the rules (eg zoning)
‘An asset protection plan helps business owners separate the business risk from their wealth to protect their family and their home.’
To reduce that vulnerability, it’s vital for you to implement strategies to protect your property and personal wealth from potential loss of control.
The 3 Most Popular Asset Protection Strategies:
Strategy 1:
Discretionary Trusts
A trust is a legally recognised relationship that exists between the trustee and the trust beneficiaries. So a trustee holds assets in a trust for the benefit of the trust’s beneficiaries.
Having property in a trust is the most common form of asset protection because, unlike individuals and companies who can sue and get sued, a trust is not an entity in its own right. Any assets held in the trust are held in the name of the trustee.
A discretionary trust is the most common type of trust in Australia because it offers the most flexibility in distributing trust income.
The trustee is given complete discretion as to how the trust income is distributed to the beneficiaries.
Family trusts
A family trust is a type of discretionary trust set up to manage a family business or hold a family’s personal or business assets.
Using a family trust as an ownership structure means that you won’t be the legal owner of the investment property but rather the beneficial owner. This means that the trustee (this can be an individual or a company entity) will own the investment property on your behalf.
The main reason investors choose to use their family trust as a vehicle to purchase property is to create a separation between the asset owner and those who will benefit from it.
The advantage of having that separation is because investors can set up their ownership structure for the purposes of:
- asset protection
- tax planning, and
- estate planning purposes.
Did you know?
A discretionary trust can also be used to purchase interests in businesses, shares in companies and investment properties. So the trust can have its own creditors, and those creditors have a right to property held in the trust.
Before moving your personal assets into a trust however, there are some things to consider:
- that the trust will become the new legal owner of those assets, and
- the transfer of the asset to the trust is likely to result in high stamp duty costs and capital gains tax issues.
Strategy 2:
Spousal Ownership
If your spouse is not involved in high-risk employment, commercial or professional activities and you are the one who operates within a high-risk industry, then you may want to consider having your home or property under your spouse’s name. Generally, if the low-risk spouse owns the property in the portfolio, it would be difficult for one of your creditors to gain control of that property.
Transferring any property held in your name to your spouse’s name is another way to protect your assets.
Strategy 3:
Business Restructuring
If you have structured your business as a partnership or sole trader and own assets such as property in your personal name, you will want to consider a restructure.
Sole traders and partners to the partnership are personally liable for their business’s financial or tax debts.
This means that a business creditor has the right to use your personal property assets to settle any debts owed by your business.
This is not an ideal situation when it comes to implementing asset protection strategies.
However if you set up your business as a company structure, you would be establishing a separate legal entity.
The company can be sued for outstanding debts, but your personal assets would be protected from the company’s creditor claims as long as you haven’t given personal guarantees.
There are various legal compliance requirements for setting up, registering and running a company, so make sure you seek professional help from someone who can advise you on how to proceed with business restructuring.
Key Takeaways
As a business owner and property investor, implementing asset protection strategies should be high on your priority list.
Without an effective asset protection plan, you risk losing your assets to your creditors should an unexpected event occur.
Please note: there is no one-size-fits-all when it comes to protecting your assets.
Each person’s property portfolio is structured differently, and you would need to consult with an asset protection specialist to arrange a plan that will best protect your assets.
Another advantage of implementing an effective asset protection plan is that many strategies come with tax benefits.
To discuss any matter relating to structuring your rental investments, protecting your assets or arranging your affairs for minimum tax, reach out to us today.
After all….
Let’s be ACCOUNTable together!
Regards,
Rukmal (Rocky) Wijesooriya
Note:
Our experience and professional services are governed by high standards inclusive of privacy provisions together with a well-established complaints process. We are governed and registered by ASIC, AFCA and FBAA for your protection of dealing with us.
Trusts and structuring can be a little complicated.
Feel free to reach out for a chat about how we can help you protect your assets
02 9499 5697
Intelligent Accounts and Finance
45A Spencer Road
Killara NSW 2071
02 9499 5697
0423547547
rukmal@
intelligentaccountsandfinance.
Australian Credit Licence: : 412778
Credit Representative Number: : 534206
ACN : 148919715
Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
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