Is your nest egg protected?
With Australia becoming increasingly litigious, individuals and business are more exposed than ever. Chris Balalovski, Perpetual Private Clients Head of Strategic Advice, talks about the importance of asset protection in today's environment.
What is asset protection and why is it important?
Asset protection is about using sophisticated and legally permissible techniques to ensure that your assets are secured should something unexpected happen. It is not about hiding assets or acting unethically to avoid financial responsibility.
Most people focus on growing their wealth but keeping it safe is just as important. In Australia, it's particularly important as we are considered to be one of the most litigious nations in the world. With individuals and businesses at risk of potential claims, and with an increasing number of Australians engaged in professional and small business fields, asset protection is more relevant than ever. So, it makes sense to have a sound asset protection plan in place.
|It's an unfortunate fact of life that some events are impossible to anticipate which can leave your personal or business assets at risk. A sudden change in the economic climate can leave your business with large debts and revenue problems at a time when clients are taking longer to pay their bills, if they can pay them at all.|
Who needs an asset protection plan?
- Most people need some form of asset protection, but it's especially important for those who are:
- engaged in a profession, eg medical professionals, accountants
- operating a business
- officers or directors of an organisation
- engaging in riskier activities, eg property development
- litigation targets, eg those in the public eye or who are perceived to be wealthy
- anyone with significant personal or business assets.
|A project or business relationship that doesn't proceed as expected can leave one or both parties financially exposed, and for professionals, open to litigation which is costly to defend.|
What does an asset protection plan involve?
A well-developed asset protection plan doesn't just look at appropriate structures, such as trusts or companies, to hold assets. A sound plan also considers tax-minimisation and estate planning strategies to create a personalised solution.
For example, protecting the family home is always an important consideration but can be complicated. The home is often one of the most significant assets a person can own but as it's generally held in an individual's name, it can be at risk.
One solution could be to use a trust to hold the home, but there could be tax implications. In most jurisdictions, a main residence owned by an individual is eligible for capital gains tax and land tax exemptions. However, if the property is owned by an entity such as a company or a trust, these exemptions don't apply. In addition, if the home is transferred into another person's name or to another entity, then stamp duty may also apply, which could be costly.
These complexities mean that there is no 'one size fits all' solution, so it's important to seek professional advice that takes your overall situation into account.
|Unfortunately, litigation is not limited to business situations. Even if a guest at a family barbeque slips and falls, you can potentially face legal action for any resulting injuries to your guest.|
When is the best time to start protecting your assets?
The sooner you start safeguarding your assets the better. But starting sooner rather than later can also minimise costs, for example, in moving assets from one entity to another.
The other reason to put a plan in place sooner is the law. To ensure that assets are transferred between individuals or structures for genuine reasons, there are many laws surrounding certain financial transactions. If there are questions regarding the financial situation of the transferring party at the time an asset protection strategy is executed, then any relevant assets may remain exposed.
Advice can help protect your hard earned wealth
A financial adviser from Perpetual Private Clients can develop a plan that meets your individual needs and ensures your most valuable assets are safeguarded both now and in the future. For more information, phone 1800 631 381.
Perpetual Private Clients advice and services are provided by Perpetual Trustee Company Limited (PTCo), ABN 42 000 001 007, AFSL 236643. This article has been prepared by PTCo. It contains general information only and is not intended to provide you with advice or take into account your objectives, financial situation or needs. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional financial, tax and/or legal advice. The views expressed in the article are the opinions of the author at the time of writing and do not constitute a recommendation to act. The information is believed to be accurate at the time of compilation and is provided by PTCo in good faith. To the extent permitted by law, no liability is accepted for any loss or damage as a result of reliance on this information.