Advanced Asset Protection

As previously touched on in our basic asset protection video, asset protection is a general term for any planning carried out to reduce a potential creditor’s ability to access assets or value.

A successful outcome of advanced asset protection planning might include the ability for at risk individuals and their families to control or benefit from assets without legally owning them. The consequence is that if the at-risk individual becomes subject to claims from creditors, those assets would not be available to satisfy them – even if a creditor is a successful litigant.

As your business, and family wealth grows, we suggest that you start considering if the following advanced asset protection principles need to be considered to protect your hard earned wealth:

Protection strategy #1: Separate Business Risks from Business Assets

Under this strategy you need to:

• Establish a business Asset Holding Entity which is separate from your personal Asset Holding Entity and transfer all Intellectual property, Trademarks, Patents, Logos, Business Names, Plant & Equipment etc. to this new entity.
• You then establish a License Agreement to License the use of all IP from the business Asset Holding Entity to the Trading Entity, and a Service Agreement or Rental Agreement to record the lease or rent of other business assets.
• The business Asset Holding Entity should not have any other relationships with other parties except for the Trading Entity.
• If the Trading Entity fails in the future, the assets in the business Asset Holding Entity should be protected, and a new Trading Entity could then be established, and new Agreements could be entered into to use the assets.

Protection strategy #2: Different Businesses Should Operate from Separate Entities

To prevent the possible failure of one business venture affecting any other business ventures, different businesses or divisions within a business should operate from separate legal entities.

As an example, if water leaks into a submarine, the compartment can be “locked-off” to prevent water getting into other compartments and sinking the submarine. In the same way, if problems develop within a business, for example, legal action is taken against it, the other businesses or divisions are protected by being operated in separate legal entities.

Protection strategy #3: Regularly Move all Surplus Funds from the “Risk” Side to the “Asset” Side.

To do this we need to ensure that the income and retained profits in your Trading Entity does not remain in the entity as working capital.

If your Trading Entity has legal action taken against it, then any retained profits are at risk. Instead, we need to fully distribute the profits from your Trading Entity at least once each quarter.

To provide working capital, you could lend the funds back from your Asset Holding Entity. Ideally, you’d include a Personal Property Securities Register too.

The idea behind this strategy is to ensure that any Trading Entities have the minimum of assets, and that no loans remain owing from individuals or related entities to the Trading Entity.

Other advanced asset protection strategies you might consider are:

• If the company shareholders are unrelated, putting in place a shareholders agreement.
• If your family and business relationships become complicated, you could consider putting in place a family constitution.
• If you are wanting to guarantee that your wealth remains in your family upon death, you could consider including blood-line clauses within your entities.
• Business owners often lend cash from one entity to another entity for working capital purposes, or to assist with buying an asset. To maximise the probability that your loans will be protected, you can register your security interest via the Personal Property Securities Register.
• Consider registering trademarks or patents over intellectual property.
• Ensuring that your businesses intellectual property is protected from employees exploiting it for their own use.

If you’re interested in learning more about advanced asset protection strategies and how they could help protect your hard earned wealth, then give us a call. We’re here to help.