Wealth Management & Protection

Asset Protection is essential for protecting and preserving company and family assets from third party claims, divorce, bankruptcy, spouses, and youthful improvidence.

Taking the most appropriate action for the protection of your own personal assets is a very complex undertaking, requiring specialist taxation and legal assistance. Asset protection must be commercially driven and cannot be used to avoid paying creditors.

Whilst asset protection is fundamental in considering estate planning, the principle can be extended to other circumstances as well. Two common areas in brief:

PROTECTING AN INDIVIDUAL’S ASSETS

Generally, one of the most efficient ways you can protect assets is by transferring them into a relevant and properly constituted trust. The asset should then be protected against the bankruptcy or divorce of the beneficiaries.

Pitfalls

Firstly, setting up a trust for asset protection will in itself not afford any protection under insolvency or matrimonial laws for beneficiaries if the wrong type of trust is used. We have seen many trusts set up for this purpose that have failed. If one tries to rely on an improperly constituted trust for asset protection the courts may look through it and seek to set it aside.

Secondly, a point which regularly tends to be overlooked (particularly regarding property) on transfer is the mortgage against the property. If the mortgage is more than the original "base" cost of the property (perhaps due to remortgaging) then Capital Gains Tax may be liable if the mortgage is transferred into the trust. Furthermore, such transfer may potentially trigger a Stamp Duty Land Tax charge.

Many think that an outright gift of assets directly to children, siblings, etc will automatically afford protection against divorce or bankruptcy. This may not be the case and is a potentially dangerous presumption to rely on, specialist professional advice should be sought to achieve the desired results. Also such transfers tend to trigger a Capital Gains Tax charge under the deemed disposal rules and again this is often overlooked with significant tax consequences.

Company Property

Businesses may wish to protect vulnerable property and assets against commercial and business risks. Broadly speaking, one way this could be achieved would be by creating a group of companies and transferring the property into this group. The effect of this would be to "ring-fence" the vulnerable asset against any claims of the individual trade in the group.

Pitfalls

It is essential that any asset transfers is done correctly to avoid the property being "linked" to the original business, as this will afford no protection. Of equal importance is that any debts between the group companies would need to be dealt with correctly to provide any real protection.

In all cases there needs to be a legitimate business, commercial or investment driver for the transaction. Furthermore, it is crucial that any such restructuring does not fall foul of insolvency legislation, namely the defrauding of creditors.

Asset protection is an invaluable planning tool which can be used to protect, preserve and devolve family wealth in the right circumstances.