Asset protection is all about protecting your physical and intellectual property from taxation and legal issues both during and after your lifetime.
This asset protection guide will take you through the potential issues you need to protect against and which methods of protection may be applicable to your personal circumstances.
Income and Gains Taxation
During your lifetime you, your profits and your property will be subject to income and gains taxation. Taxation strips down an asset’s worth, reduces an individual’s net worth and slowly erodes the value of your overall estate.
With careful asset protection you can minimize your personal and business taxation burden. The structuring of vehicles to achieve this aim should only be designed and implemented with assistance from an expert taxation planner as you have to remain 100% within the laws of your country.
Estate Taxation
Thanks in part to the global property boom many more individuals particularly in countries such as UK, USA, Australia, New Zealand and Canada are finding that the value of their overall estate is above the threshold below which no death duty, estate tax or death tax is payable. This is resulting in more people understanding that they will have limited say over how the assets within their estate can be distributed after their death.
Estate taxation is unfair, restrictive, excessive and totally avoidable in many cases. It is essential that steps are taken during an individual’s lifetime to secure their physical and intellectual property after their death and to ensure their assets are passed on according to their will and not according to the whims of the taxman.
Litigation
Legal action can be taken against you, your family or your business, and in this day and age taking legal action against someone is very easy to instigate and highly popular as it can bring about a profitable outcome for the plaintiff. Legal action could take the form of a divorce, it could take the form of a malpractice suit or it could take the form of a civil money judgment for example. And unfortunately the more you appear to have, the more likely you will be sued.
Remember, asset protection should never be used to ‘cheat’ legitimate creditors, rather it can and should be used to separate potential liabilities away from your most valuable assets - for example protecting your home from a claim made against your business. Furthermore you can use asset protection to reduce your overall property profile - the less people see you have the less they will want to take off you! You can legitimately places assets in the hands of other family members to distribute the overall weighting of your estate to disperse impact from any lawsuit against one family member.
You can also use asset protection to provide an added layer of privacy and security to your life, your family’s lives and the assets you hold, this can help to protect against frivolous litigation by chancers and also secure against identity theft for example.
Asset protection planning can and should be done by all of us to one extent or another. Those who have assets valued at over two million dollars should definitely consider employing the services of asset protection planners who will charge around USD 5,000 per USD 1 million of assets to protect and who will likely incorporate strategies including everything from captive insurance companies to the formation of a Series LLC! For the rest of us we can go it alone and seek out experts in the field of the particular asset protection vehicle we’re interested in.
First things first consider separating business and family assets and liabilities. The formation of a limited liability company for example, which is actually a mixture of a corporation and a partnership, protects the owners of the company from any personal liability. This may be something you could consider.
If you’re about to get married consider implementing a pre-nuptial agreement that lays out who brings what into the partnership and what each individual can walk away with in the event of a divorce. This can help prevent acrimonious court battles over property later down the line.
Transferring assets into trust is the oldest form of asset protection and a form which affords protection of assets both during the asset owner’s life and after their death. Assets placed in trust are no longer ‘owned’ by you, rather they are protected by the trustees and managed according to the terms of the trust. Trusts can protect against income, gains and estate taxation and litigation. Trust structures vary massively and the applicability of any one type for your particular circumstances must be determined by an expert…get it wrong and you could lose all your assets! Get it right and you could protect your estate for life.
The offshore world can offer individuals privacy and tax efficiency when it comes to asset protection. You can incorporate your company offshore, hold financial assets in an offshore bank account - you could even establish a trust offshore. The applicability or otherwise of the offshore world for your particular circumstances is discussed in our article ‘Should You Go Offshore For Asset Protection?’
Other methods that can be considered for asset protection purposes include but are not limited to gifting assets during your lifetime, joint or multiple asset ownership, certain annuity and insurance structures and products, limited partnerships and at the extreme, expatriation!
