Best Method of Asset Protection

[amativus]

Hey there everyone,

I wanted to find out what is the best method for asset protection. I'm thinking of stepping into the market in the near future, however, i want to structure myself in the best possible way from a number of perspectives:

a) Tax minimisation strategies
b) Litigation
c) Marriage asset separation

I am self employed and am thinking that a trust structure might be best?

So i establish a trust, which acquires property and accumulates debt in regards to these properties. My company would pay me a base wage, whilst also distributing income to the trust to service its liabilities and potentially disburse to family, ie brother, mother etc

In regards to the trust structure, would i be the trustee or should i appoint another?

Thank you in advance for your input.

 

[BayView]

Speaking to your accountant should be the course of action on this one.

I can suggest that if you are starting out, and have a taxable income (especially a high taxable income) it may be better to begin with a standard purchase in your own names/s to maximise the tax deductions against your taxable income.

As you progress, you may want to look at other structures which may be better.

If you are self employed, and have a company, the purchases can be made using the company to a degree, but you will come up against different lending LVR's and criteria from the banks - more restrictive - than if you are a wage earner with a good savings history and long term employment record.

On a side note; if you are self employed by your own Company, treat it like a large Company, run it like one and pay yourself a proper wage as one of its employees.

Speak to your accountant about the level of wage to pay yourself and other strategies.

 

[Terryw]

The best method and probably the only method, is to use a discretionary trust. With a discretionary trust no one beneficiary has any interest in the property of the trust.

With any other structure you will have direct interest in the property.

But, it is not so much the structure, but the way you set it up and the way you use it. You have to be aware of all the claw back provisions that a trustee in bankruptcy may be able to use to get access to your trust property.

eg. If you set up a DT and you do work for the trust, such as managing the books, the trust assets etc, and if you don't receive any payment for this work and later went bankrupt, then there is a provision for the trustee in bankruptcy to claim money from your trust for this under remunerated work.

But you also have to know how things work in the real world. Unless the sums are large, the Bankruptcy trustee won't generally investigate things.

 

[ashalim]

Terry,

Would DT work for singles? ie. Not married, don't have kids, etc.

 

[Terryw]

Terry,

Would DT work for singles? ie. Not married, don't have kids, etc.

Depends on what you mean by 'work', but Yes I think so.

 

[bene313]

c) Marriage asset separation

Get's tricky here - the family court may "look through" legal structures to split assets.

 

[ashalim]

Depends on what you mean by 'work', but Yes I think so.

As a method of Asset Protection.

 

[Terryw]

If you use it properly yes- but as bene pointed out, not necessarily for family law matters. Premarital trust assets could even be at risk in family law matters.

 

[amativus]

Thanks guys for the input.

So how could one protect themselves without introducing a pre-nup into a potential marriage - believe that this places quite a bit of initial pressure and creates issues.


Regards

 

[Terryw]

Celibacy and a life on your own are your only options.

 

[bene313]

Or marry someone with more assets than yourself.

 

[DavidMc]

You can also use debt as an asset protection mechanism.

i.e. always keep investing so your LVR is 80%+, so if anyone was to 'have a go' at you after CGT and other sales costs there would be nothing left to go for.

 

[Terryw]

You can also use debt as an asset protection mechanism.

i.e. always keep investing so your LVR is 80%+, so if anyone was to 'have a go' at you after CGT and other sales costs there would be nothing left to go for.

True, but debt means borrowing money. How safe it would be would depend on where the money goes. If it goes into another investment or on lent to a trust, for example, it could be clawed back. If you just spend it, it probably couldn't be clawed back.

 

[EarlyRetirement]

Re matrimonial protection, it is very difficult. Pre-nup is the best bet.

Discretionary trusts can work, but as already pointed out, the court can look past the structure and they regularly do.

You would need to set the trust up so that you have no control over it and that it appears to anyone who looks at how it is established and run that you are not pulling the strings. If you have the sole power of appointment for the trust and make all the decisions, it is going to look sus. Also, for example, even if you are one of a few beneficiaries under the trust, if the trustee is a close, friendly sibling and you've received all distributions from the trust for the past few years, that'll look sus as well.

 

[Terryw]

Re matrimonial protection, it is very difficult. Pre-nup is the best bet.

Discretionary trusts can work, but as already pointed out, the court can look past the structure and they regularly do.

You would need to set the trust up so that you have no control over it and that it appears to anyone who looks at how it is established and run that you are not pulling the strings. If you have the sole power of appointment for the trust and make all the decisions, it is going to look sus. Also, for example, even if you are one of a few beneficiaries under the trust, if the trustee is a close, friendly sibling and you've received all distributions from the trust for the past few years, that'll look sus as well.

Thats true, but if you set your trust up like that, then the protection is only as good as that person controlling it- what if they get into their own family law problems for example.

 

[EarlyRetirement]

Thats true, but if you set your trust up like that, then the protection is only as good as that person controlling it- what if they get into their own family law problems for example.

Terry, exactly, that's why it's not a great solution for most people.