Asset Protection: Why Important?
Two questions:
1) Do you own assets? 2) Do you care if you lose everything you own?
If your answer to both of these questions is a YES, then you need some type of Asset Protection.
Recipe for Investing
First of all, you will need to create company and then a trust. Serving as a trustee, the company can be a basic $3 company. The trust will own all assets and therefore has no owner of the trust. There are only beneficiaries and the “Trustee” (the company). There is no one to be isolated ready to be sued for the assets of the trust which makes this process secure. There is a misunderstanding that the Trustee kind of owns the trust. The trustee does not.
A company works in the following way:
You become the director and shareholder of the company. The implications of this are that you control the company and own the company as the shareholder. Because the company is the trustee of the trust, you control the trust, but not own it. The assets of the trust belong to the trust and the trust owns everything. Those who benefit from it are the beneficiaries, not the trustee. Does this make sense? You control everything but not own it. If you don’t own it, you can’t be sued for something you don’t have. Now does it make sense?
This is one of many ways to protect yourself. You can also create multiple trusts to make it more difficult for people intending to sue and go after the assets of the trust. This is only possible when someone has a claim on the assets of the trust.
If a lawsuit were to happen, the person suing you can take your house investments, other belongings and your future income and assets. Were you aware of this? Even if you place all of your wealth in a company, the person suing can still get a lot by suing the director’s assets as well as those of the company. In a scenario like this, utilizing the Trust and the Company protects anything in your name, which is better than losing everything alongside the company’s assets if you were to get sued!
By creating more trusts under the control of the trustee, you can layer the structure set up so that in the scenario of a lawsuit, you are more protected. How? Every trust added can hold different assets and serve to protect you in case one trust gets in trouble. In a situation like this, you would only need one trustee company. The only negative consequence to this is that of stamp duty, transfer costs and, of course, Capital Gains Tax. Factor these costs into your total expenses before taking any action. Thinking ahead about potential law suits is important as well. Always assume the risks of lawsuits. It will help you prepare for the long run “in case” it ever does happen. You don’t want to get caught off guard.
One way of transferring assets and avoiding Capital Gains Tax is by leaving your house under your ownership. Even though the house is under your name, assuming it is your primary residence, it is exempt from CGT and Land Tax. However, there is a trick to it: load the mortgage to the max. For example, getting a home equity loan up to 80 or 90 percent of its value and placing this money in the trust in the form of a new property or other investments. By doing this, the asset is successfully transferred stamp-duty-free into a trust! This ultimately reduces what is liable and up for grabs if sued by 80 or 90 percent, while still maintaining the Capital Gain Tax free result on your home.
For more information on articles like this, please visit our site to learn Asset Protection Strategies. Also find further insights on Peter Macfarlane's own Offshore Banking blog.