Asset Protection
Asset protection is a term used in the financial industry to describe wealth management strategies and tools that help individuals, families, and businesses protect their assets.
Everyone needs to have protection in place because life doesn’t always go according to plan. For instance, you may be sued, lose your job, or get into an accident that prevents you from working. Wiithout asset protection in place, this could lead to bankruptcy or foreclosure on your home. It could also be when a business suffers from extended periods of losses. The key is understanding what type of legal structures will best suit your needs.
Asset protection includes many strategies to preserve and protect assets and/or minimise taxes. This can include:
Discretionary Family Trust
A discretionary trust is a legal arrangement in which assets are held by a trustee for the benefit of one or more named beneficiaries. The trust essentially owns the property, and the trustee has discretion over how and when the trust income is distributed, which can make it an attractive option for asset protection.
Discretionary trusts are often used to protect family wealth from potential creditors, taxes,
and estate planning.
When properly structured, a discretionary trust can be an effective way to shield assets from outside creditors and reduce the overall tax burden on a family.
Low Risk Spousal Ownership
A popular strategy is to build up assets in the name of a low-risk spouse. This can help to shield assets from creditors in the event that the high-risk spouse is sued or falls into debt due to various business ventures. This strategy can also be beneficial from an income tax perspective if the spouse is earning a lower income.
Use a Company Structure
One way to protect your assets is to set up a business structure such as a company. Companies are separate legal entities. That means the company, not the owners, is liable for the company’s debts.
So if the company can’t pay its debts, the creditors can’t come after the owners’ personal assets. This is, among other things, as long as the company was not trading insolvent or directors or shareholders gave personal guarantees.
Invest into Life Insurance Bonds
Another strategy to protect assets is to invest into life insurance investment bonds. These are investment products that are issued by life insurance companies.
While they are purely investment products that provide no additional insurance cover, they are still considered life insurance policies from a legal and taxation perspective.
In addition to the taxation benefits, the proceeds of life insurance investment bonds are generally protected from creditors in the case of bankruptcy.
Build up your Superannuation
Like life insurance investment bonds, superannuation investments are usually protected from creditors in the case of bankruptcy. This applies in both the accumulation and pension (retirement) phase.
The best option for you will depend on your individual circumstances, so it’s best to seek investment advice as well as financial advice if you’re considering asset restructuring.
