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Wealth Protection
Problem 1: No or Few Liability Protections
If the right structure, documentation and insurances aren’t put in place, then you are unnecessarily exposing your business and family wealth to the potentially harmful effects of an uncertain world.
Solution
Basic asset protection.
Outcome
The bare minimum protection you should have.
Read Key Points & Transcript
Basic Asset Protection
video key points
- Implementing asset protection strategies is critical in a litigious business environment to safeguard assets and, in due time, ensure wealth is passed to future generations efficiently.
- Asset protection mitigates risks associated with business operations, such as difficulties in paying debts or legal challenges, by shielding personal wealth.
- Strategic planning for asset protection involves identifying, isolating, and managing risks to maintain control over assets, flexibility in taxation, and security of wealth.
- Common asset protection strategies include adequate insurance coverage, proper employment contracts, restructuring businesses for limited liability, establishing discretionary trusts, and transferring assets to a low-risk spouse.
- To enhance your asset protection strategy and safeguard your business and personal wealth, consider reviewing and adjusting your plans regularly.
Presented by: Saul Segal
video transcript
At Munro’s, we believe that implementing asset protection strategies are arguably as important as purchasing the assets in the first place.
This is because, in an increasingly litigious business environment, it is very important that you take the time to properly protect your assets and plan for passing on your wealth to future family generations.
In this short video we will go through the basics of what asset protection is and why it is so important.
Why is asset protection important?
Running a business has risks whenever you enter into a business or contractual relationship with customers, suppliers and employees. Unexpected events can occur that are beyond your control. For instance, your business might face difficulty in paying debts or get involved in a lawsuit.
The aim of implementing asset protection strategies is to shield your hard earned personal wealth from these risks.
Effective asset protection is all about strategic planning for the future in a manner which delivers maximum asset control, taxation flexibility and protection of your hard-earned assets.
When devising an appropriate asset protection strategy for your circumstances, the key steps you need to first address are to:
- Identify the risk. Such as litigation claims.
- Isolate the risk. By implementing structures to remove the asset from the risk situation. For example, housing passive income producing assets in a separate structure to a business structure.
- Manage the risk. Revise your structures and strategies periodically to ensure they fit with any changes in your circumstances.
The most common types of asset protection strategies available to you are as follows:
- Often the most simplest and sometimes overlooked strategy is ensuring that you have taken out the appropriate levels of insurance, such as life insurance, business insurance and income protection insurance to name a few.
- Ensuring that employment contracts are in place.
- Restructure your existing business from a sole trader or partnership into a company, because a company can offer directors limited liability in the event of insolvency.
- Establish a discretionary trust to hold investments and business assets.
- Consider transferring your personal assets to your low-risk spouse.
If you’re interested in learning more about asset protection strategies, then watch our video on advanced asset protection strategies or give us a call. We’re here to help.
Problem 2: Inadequate Exposures Given Size/Complexity
When business gets more complex, whether due to such matters as multiple generations or blended family involvement, more shareholders or more valuable IP, the time is right to clamp down on your increased exposures to safeguard your wealth.
Solution
Advanced asset protection.
Outcome
Smart protection for an unpredictable world.
Read Key Points & Transcript
Advanced Asset Protection
video key points
- Asset protection planning is vital for reducing a potential creditor’s access to assets, ensuring individuals and families can control or benefit from assets without legal ownership, thus safeguarding them from creditor claims.
- Implementing a separation of business risks from assets involves establishing distinct entities for holding and trading assets, utilising license and service agreements to protect assets in the event of business failure.
- Different businesses or divisions should operate from separate legal entities to isolate risks and prevent the spread of financial or legal issues across ventures.
- Regularly transferring surplus funds from the trading entity to the asset-holding entity minimises risk exposure, with strategies like profit distribution and loan back arrangements to maintain working capital with minimal asset vulnerability.
- Advanced strategies include shareholder agreements, family constitutions, blood-line clauses, securing loans via the Personal Property Securities Register, and protecting intellectual property through trademarks or patents to ensure long-term asset safety.
Presented by: Saul Segal
video transcript
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.
If a lawsuit was definitely going to commence against you tomorrow, would you sleep comfortably tonight?
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