Asset protection involves keeping assets safe from potential harm or liability. If someone sues you, they may only be able to access your unprotected assets. To shield your assets from such risks, you can employ various strategies:
- Establishing a secure structure: Consider asset protection when starting a business. The type of entity, its location, and funding methods can impact the security of personal and business assets. Minimizing taxes, such as income tax and capital gains tax, also plays a role in asset protection.
- 2. Separate high risk and lower risk assets: Don’t mix risky assets, like business operations, with lower risk assets, such as shares and real estate. Consider having separate entities for each asset category.
- Adding firewalls and layers of protection: Enhance asset protection by introducing measures like converting to a single director company or using a company as a trustee for a trust, creating an extra barrier against potential claims.
- Planning for business succession: Ensure business continuity and protect assets by establishing a robust business succession plan that provides for the smooth transfer of assets in case of illness or death of a key person.
- Utilizing bankruptcy safe havens: By designating one partner as the “person of straw” and the other as the “person of substance,” you can shield assets from creditors. Additionally, assets held within superannuation funds and SMSFs are often protected from bankruptcy claims.
- Implementing Bankruptcy Trusts and Divorce Protection Trusts in your Will: These trusts safeguard your family’s assets from potential attacks and provide protection in case of bankruptcy or divorce among your descendants.
- Using interposed entities for business assets: When leasing out property or running a business like a bed and breakfast, consider using a separate structure to protect personal assets from business risks.
- Avoiding reliance solely on insurance: While insurance is essential, it’s not foolproof. Complement it with solid business systems, a secure structure, and a lack of personal assets in your name.
- Being cautious with personal guarantees: Limit the use of personal guarantees, as they can expose personal assets to creditor claims.
- Considering bare trusts for asset protection: Bare trusts, such as the Declaration of Trust and the Acknowledgment of Trust Deed, can help protect assets by keeping them separate from the trustee’s personal liabilities.
Keep in mind that asset protection and estate planning are complex matters, and seeking guidance from qualified professionals is crucial for creating a comprehensive and effective asset protection plan tailored to your specific needs and circumstances.