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Are your assets protected?

Posted on February 26, 2017
by Tim O’Brien in Accounting Blogs & BUSINESS Blogs

In today’s increasingly litigious society asset protection is particularly important. With so many Australians now engaged as professionals and in small business fields the need to have a sound asset-protection plan in place is vital.

For many of our business clients a key aspect of the work we perform is planning around protecting the assets they have built up in their lifetime. Common concerns include:

  • Protecting assets from creditor claims, bankruptcy and divorce
  • Protecting personal and business assets for future generations
  • Ensuring assets passed to children are protected from creditor claims, bankruptcy or divorce of their children

A traditionally popular method of protecting personal and business assets is through the use of trusts. Often a fundamental element in the planning of business, investment and family financial affairs, trusts are commonplace but repeatedly misunderstood.

A trust is a relationship where a person (the ‘Trustee’) is under an obligation to hold property for the benefit of other persons (the ‘Beneficiaries’). A frequently held, but erroneous view is that a trust is a legal entity or person like a company or an individual. The courts have, however, long recognised that a beneficiary of a Discretionary (or Family) Trust, for example, does not generally have a defined interest in any of the trust’s assets, even though that beneficiary may control the trust. Therefore, if a beneficiary faces claims from creditors, becomes bankrupt or is divorced, in most circumstances the trust assets will not be at risk.

In addition to the utilisation of trusts some other basic forms of asset protection include:

  • Identifying one person in the family as being the ‘at risk’ individual, commonly the person running the business. Often this person will be the director of the company and they are the one providing personal guarantees to lenders etc;
  • Owning significant assets, including the family home, in the name of an individual who is not ‘at risk’; ​
  • Holding valuable business assets in a separate legal entity to the ‘trading’ entity (e.g. valuable equipment and commercial property); and​
  • Carrying on a business through a separate legal entity, e.g. a company or trust.​

To avoid potentially unforeseen and significant losses, it is important to have the right strategies in place to safeguard your assets. It’s important to choose the right trusts, for example, and to implement strategies that are suited to your specific needs. This means not only taking into account asset protection but also tax consequences, functionality, and costs of implementation.

Get in touch with BLG Business Advisers online today, or call (02) 4229 2211 to discuss how we can help protect you and your assets!


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