Asset Protection – Strategies to Safeguard What Is Yours

What is Asset Protection?

Asset protection is the practice of safeguarding your wealth and property. It involves using strategies and legal structures to separate your assets from potential liabilities, ensuring that your personal wealth is shielded from risks related to your business or personal life including but not limited to, creditor claims, workplace accidents, lawsuits, insolvency and relationship breakdowns.

We recommend regularly reviewing your assets and potential risk, implementing or updating asset protection strategies where appropriate. These don’t have to involve complex or costly legal structures. Often, the process is as simple as reviewing your current business structure and exploring practical strategies to minimise your risk. With the right planning, you can significantly reduce exposure to personal and business-related liabilities.

As your business grows and your wealth increases, your asset protection plan can be revised and strengthened to keep pace with your expanding portfolio, accommodating additional assets and new risks. The earlier a solid plan is in place, the easier it will be to safeguard your assets as they accumulate over time.

Strategies to Protect Your Assets

1. Insurance

One of the most affordable ways to protect yourself, your investments or your business is to obtain an appropriate insurance policy. However, it's crucial to fully understand what is covered. This is where an insurance broker can be a valuable resource. They can assess your specific needs and help you choose the right coverage to ensure you're properly protected.

Insuring your assets is a straightforward way to protect the wealth you've worked hard to build. Common types of personal insurance include:

• Home and contents insurance: Protects your home and belongings from damage, theft, or loss.
• Landlord insurance: Covers your property and rental income against risks like damage or tenant-related issues.
• Car insurance: Protects your vehicle in the event of an accident or theft.

For businesses, insurance is essential regardless of your operating structure. Key types of business insurance include:

• Public liability insurance: Covers compensation claims for personal injury or property damage caused by your business activities.
• Professional indemnity insurance: Protects against claims of negligence or breach of duty while providing professional services.
• Workers' compensation insurance: Covers your employees' wages and medical expenses if they suffer a work-related injury or illness.

2. Business Structure

A popular and effective strategy to protect your assets is to structurally isolate your personal wealth from business. With the support of a business adviser and/or legal professional, a separate entity may be established to maintain trading operations and keep your personal assets safe from business risks and unexpected events.

There are a variety of structures which can be used when considering asset protection.

Trust

A trust is a relationship where a person or a company (the trustee) holds assets for the benefit of other people (the beneficiaries). Depending on your circumstances, it may provide a great way to manage tax and protect assets. The key benefits are:

• Asset protection: By separating business and personal assets, a trust helps shield them from personal liabilities and potential claims.
• Wealth transfer: Trusts can help avoid unnecessary transfer costs and tax implications when passing wealth from one generation to the next.

Company

A company is a separate legal entity which means it owns business assets separate from the management (directors) or the owners (shareholders). The main benefits of incorporating a business include:

• Limited liability: A company has limited liability for the shareholders, meaning they are generally only liable for the amount due on their shares. Despite this, it should be noted that directors may be held personally liable for debts of the company if they have breached specific director duties or traded whilst insolvent.
• Flexible ownership: A company’s shares are easily transferrable from one member to the next which enables flexible business expansion as your assets or business grows and you may wish to bring in new partners.
• Perpetuality: A company has an unlimited lifespan once established.

3. Estate Planning

After a lifetime of hard work building your business and accumulating wealth, you want to ensure your legacy is protected for future generations. Establishing a clear succession plan is essential to determine what happens to your business if your circumstances change—whether due to retirement, illness, or death.

A lawyer is the best professional to talk to when creating a succession or estate plan, however it is important to also involve your trusted business adviser in these discussions.

What's Next?

Formulating a strategy for asset protection should be considered as a part of your overall business and financial planning. A good place to start is to review the items above so you can determine what is relevant for your situation. Are there things you can do on your own? What areas do you know you need assistance with?

Protecting your assets is often as simple as reviewing your current business structure, but it is important to review the potential costs or tax impacts of changing your structure before moving forward with any changes.

Reaching out to discuss your options with a trusted business adviser, lawyer or insurance broker can help to clear a path forward so you know exactly where things stand and what is required.

If you are currently looking for a business adviser or accountant to assist you and your business, please make sure you talk with us to gain some clear direction. Our team at BLG Business Advisers are Wollongong Accountants who service right around Australia. There is no cost or commitment involved in an initial chat with us, which leaves you free to decide if we are the right fit for you.

Whatever you decide we wish you and your business every success!

*Please note that the above information is general advice only. We recommend you seek advice from a specialist relevant to your personal situation. This information is correct at the time of publishing and is subject to change*