Asset protection is more important than ever. Economic changes, largely brought about in the wake of the COVID-19 pandemic, have caused finances to fluctuate and brought increased market unpredictability. If your business runs into trouble, or if something unexpected happens, you want to make sure your hard-earned assets are protected at every step. Making sure your assets are secured is crucial to long-term success, and to help you continue your focus on improving your wealth and making a profit.
If you’re interested in asset protection, what it involves, and what strategies are right for you, read on – our Wealth Management experts put together this helpful blog with everything you need to know.
What is asset protection?
Asset protection involves proactive strategies to keep your personal wealth and assets secure. It’s especially important if you’re running a business. Business owners are more likely to attract risks from a range of unexpected events, such as workplace accidents, creditor claims, lawsuits, relationship breakdowns, and insolvency. If these situations arise, you want to do what you can to protect your personal wealth. That’s why regular consideration of your assets and the potential risks is crucial, as is updating the strategies you’ve put in place where appropriate.
You might think asset protection sounds complicated, but it doesn’t need to be. The process is often as simple as reviewing the current situation, assessing the strategies available, and deciding the approach best suited to your circumstances.
Implementing asset protection sooner rather than later is ideal, especially if you’re starting a new business or acquiring significant assets. And as your business and assets grow and develop, your strategies can easily be reviewed to take into account new assets and new risks.
How can I protect my assets?
Many people choose insurance as a way to protect their assets. Insurance can be a fairly inexpensive choice for sole traders and other types of entities. The insurance you might consider for your business could include:
- Public liability: This insurance covers any cost of legal action or compensation claims a client or member of the public makes against your business, as a result of personal injury or property damage.
- Professional indemnity: This insurance protects you and your business from claims of negligence or any breach of duty that might arise while you carry out your work.
- Worker’s compensation: These policies cover your employee’s wages and any costs if they need treatment for a work-related illness or injury.
While these policies help with asset protection, the level of protection they offer might be limited in certain situations. If circumstances outside of your business dealings, such as a marriage breakdown, threaten your assets, you may not be able to seek protection through these policies. To understand what your policies do and don’t cover, an insurance broker can help you gain confidence in what’s involved and find the best policy for your needs.
Restructuring of business and asset ownership
Many business owners choose restructuring as an effective way of protecting assets. Restructuring involves separating your personal wealth from any income associated with business or trade. A business and legal adviser can help guide the process and establish a separate entity to keep your trading operations going and protect your personal assets from harm. These entities include:
A company owns the business assets separately from management (or directors) and owners (or shareholders). It can sue and be sued but this means shareholders face little liability as they’re usually only liable for the particular shares they own. Directors may be liable for breaching any duties or trading while they are insolvent.
In terms of tax, corporate tax rates for companies currently sit between 25 and 30%. Additionally, companies aren’t eligible for the 50% discount on capital gains that is available to individuals and to trusts.
Assets held in trust are owned separately from any associated individuals. A trust allows you to isolate your personal assets from your business assets, protecting you in the event of unexpected circumstances. Trusts aren’t legal entities; rather, they’re a relationship in which the Trustee is obliged to hold property for Beneficiaries. The Trustee will own the assets, but those who determine the Trustee (known as the Appointer) control the entire trust and its assets. Trusts afford flexibility regarding income distribution, and the income of a trust is usually taxable to beneficiaries. This offers them more options regarding tax-free thresholds and capital gains discounts.
Trusts are generally exempt from income tax and capital gains tax, as beneficiaries and unit holders are usually subject to tax on the distribution of any assessable income. Trustees, however, may be liable to pay tax on trust income in particular circumstances, such as in the event of undistributed income or when distributions are made to foreign residents or minors. Some trusts may also be subject to higher taxes within their state, such as land tax.
Estate planning and succession
If you’ve spent years building a business, you want to preserve your legacy for the future. A succession plan can help you identify what you want to happen to your business in the event of retirement, illness, death, or another change in your circumstances. A will is also crucial to helping you set up an estate plan and dictate what you’d like to happen to your assets.
Want to maximise your asset protection?
When you need quality advice and professional support to protect your personal and business assets, Carbon is here to help. We’re a friendly, proactive team of accountants, bookkeepers, brokers and advisers, determined to help our valued clients make the most out of their finances, secure their future, and improve their wealth. Based in five states across the country, we pride ourselves on our local flavour, on the expertise of our team, on our passion for versatility and quick thinking, and on our accessible services which truly set us apart.