“Asset Protection” is a term that includes various methods and techniques which can protect a persons or families business and investment assets against the uncertainty and risks of business life.
One of the most basic techniques is to structure business assets so that they are held by companies and trusts, and various combinations of these structures.
The proprietary limited company is a basic business structure which protects a business person’s assets from the creditors of the business. Companies also have a set flat rate of income tax, set at 30%, which is lower than the rate applicable to personal income tax over $37,000 per adult annually, so companies can assist in deferring income tax.
There are a wide variety of trusts. The most common types of trusts used in business are Unit Trusts and Family Trusts. Unit Trusts have a “unitised” ownership structure such that the ownership of the units is similar to the ownership of shares in a company. Both units and shares provide a proportionate share in the total net equity of the trust or company. This can be contrasted with Family Trusts, where the Trustee can choose to benefit one or several of a group or people known as the beneficiaries, being members of a class of people defined in the trust deed, usually related to the principal person named in the deed.
It is only when the Trustee “appoints” income or capital to a beneficiary that that person becomes entitled to those assets or that income.
The use of Companies for limited liability and Family Trusts are the building blocks of asset protection but it is the way that these structures are combined that provides the required asset protection.