10 Tips of Asset Protection – “February 2023”.

Over the month of February 2023, I will give you 10 basic tips to protect your assets and keep them from greedy gold-digging scumbags, and stop people from reaping from you where they have not sown. These are the secrets that lawyers, governments, and the super-rich have known for a long time. It is unlikely you have ever heard some of these from your accountant! Implement today to keep your family’s wealth safe and give yourself peace of mind, knowing your family’s future is safe.

DISCLAIMER: Implementing these strategies always requires professional advice. There are exceptions to every rule, especially with negative gearing and property and its impact on the use of family trust strategies to protect one’s assets from greedy gold digging scumbags.

Tip number 1: “Control not own assets”.

This is the biggest secret of the rich, and my personal favourite.

If the rich own assets in their name, what happens? They can easily be taken in a lawsuit or if they go bankrupt. So rather than own assets in your own name, own them in a family trust or company. So with a family trust, for example, Daisy would be the appointor, or owner or controller of that trust, not Donald. This way if Donald gets sued in his business, and his assets are held in a family trust, Donald controls the assets but does not technically own them. Or with a family home, he can have it in the name of a safe partner (ie. Daisy) if he has that.

Not only that, but owning assets in your own name, or running your business in your own name, can ruin your credit rating. Using a structure can shield this. More to come later.

In summary, the rich always ensure they control assets. They avoid owning them as much as possible. The secret is to be a penniless bum on paper.

Tip number 2: “The Couples Strategy”.

This is used by couples who are building long-term relationships together. I know it as the Strawman and Person of Substance theory.

Let’s say you’ve got Donald and Daisy Duck. Now let’s say they have three kids, Hue, Duey and Louie. Donald and Daisy Duck own assets. Donald is a doctor and Daisy is just at home with the kids. They don’t have any structure like a company or family trust and own everything in their own name.

Who is more at risk of being sued in a lawsuit? Donald of course! So who should control the assets? Daisy, as she is not at risk, whereas Donald is! So Donald should not own the assets or control them, only Daisy (or a structure Daisy controls).

So in summary, that’s the basic trick. By doing this, the assets stay safe. What we are doing is making Donald a penniless bum on paper, ie. he owns nothing at all.

Tip number 3: “Using Companies and Trusts”

Companies and trusts are the greatest secret of the rich to protect assets and minimize tax legally. Almost every rich client I know has lots of structures set up (not always right, mind you … ). They provide a buffer or shield between you and your assets.

So for example, if you get sued in your company and/or trust, unless there are exceptional circumstances, the assets stay in the trust. Although the court does have a discretion to break a trust, it is in very limited circumstances … and in practice you certainly can’t rely on it.

So let’s say that Donald and Daisy have $1 million in their own name. Clearly that is at risk and easily taken. Let’s say by contrast Donald and Daisy run a medical business through a company. If the business gets sued by a greedy golddigging scumbag, or the ATO seeks to go for the debt and wind them up, the debt only attaches to the structure, and not Donald and Daisy personally (with some exceptions, but that is the general position.) Therefore, although you may have to wind up the company, the business (discussed later), you will save your personal assets. And it’s perfectly possible you may be able to re-establish your business.

Tip number 4: “Being Single, How Should I Be Structured?”

A lot of people say to me that because they are single, companies and trusts can’t help them.

Wrong! Although companies and trusts have less flexibility with what you do with the appointor, or controlling parties, nevertheless, having the separate entity between a potential predator and your assets is very powerful, even if you are the sole appointor.

Let’s say. Donald and Daisy were both at risk of being sued, eg. Donald is a doctor and Daisy is a financial advisor. They are both at risk of being sued. Or we are talking about Huey who is a doctor who is single. Owning a company or trust acts as a great smokescreen against anyone seeking to get your assets. If Huey, for example, has a trust for his business, and also sets up a family trust to control his private assets, it makes Huey’s assets very unattractive in a lawsuit. It also gives family members some control over your assets.

If you don’t fully trust your partner, you should be careful owning joint assets. Your assets may be caveated by a lender, but with your partner, you shouldn’t do it unless you really trust each other.

In summary, being single can be a great thing … it definitely causes challenges to rise up. At the same time, structure your wealth to be tax efficient, and keep your hard earned wealth protected.

Tip number 5: “Understand how the system works”.

This is very important. The rich always know how to play the game. Think of it like Monopoly or like chess. The better you know the game, the more likely you are to win.

Let’s just say someone wants to sue you. Their lawyer searches the asset register. If your name is not on it, they usually go away! If your name is on it, but they see mortgages, or other hindrances, this too makes your assets suddenly very unattractive (this tip is discussed more in one of our future tips).

Not just that, but in practice, if your company or you, go bankrupt or into liquidation, and assets are held in a family trust, it is very likely that liquidators or other people chasing your money will back off. Now why is that? Because it costs lots of money to chase you. Unless creditors with “deep pockets” are willing to give them money to chase you (which usually they are not), they will walk away. And liquidators will usually lose interest fast if there is a second mortgage because they will only chase assets if someone funds them. And that does not always happen, especially with small asset bases.

The important thing is to strategically plan.

Tip number 6: “McDonalds Strategy”.

I call it the “McDonalds Strategy: because it’s basically what McDonalds (the fast food chain does).

Common sense would tell you that McDonalds do not own their brand name (which is worth billions) in the same structure as they sell their burgers in. So for example, McDonalds own all their brand name, intellectual property, in a structure overseas (say Netherlands). The McDonalds store in central Melbourne in Australia is in a different structure from say the McDonalds store in Manila Philippines.

Likewise if a client has a valuable office building for his or her business, or a valuable brand name, these should be owned in a separate structure to the structure that deals with clients and takes their money. You would then have a licence agreement between the structure holding the building or brand name, and the structure that trades on a daily basis.

The result is, if someone sues the business, the assets remain safe in the building or brand name trust.

In my own business, I now have a separate brand name structure to the trading structure for accounting, my education products, whatever else I do.

In summary, copy what the rich corporations do. Have a separate structure and bank account where possible, ESPECIALLY between personal and business.

Tip number 7: “Hold assets in a Self Managed Super Fund”

Any assets you hold in a self managed super fund are usually protected in a lawsuit.

Why is that? The government want to protect you for retirement so, they don’t end up having to pay you a pension. So therefore, the Governments want to ensure that your super remains safe.

So what does that mean? It means that you buy any assets you are happy to hold for the long term, and want protected, and don’t need to use before your retirement, eg. properties you want to hold for the long term (and don’t need the rents before retirement), or your business premises and rent it back, or you can buy shares in your super fund to write call options over for income.

A lot of people are now buying property through a SMSF at 75% lend.

In summary, a self managed superannuation fund can be a great way to get started. But you need to think very carefully about it before doing it.

Tip number 8: “Use Charitable foundations”

We talked about self managed super funds in Tip number 7. Likewise, if you are buying a building or assets to use for a higher purpose, or make a difference, rather than buying those assets in your own name, you can set up a charitable foundation and buy it in that. We are looking at it.

For example, we had a client who ran a church, and also ran a charitable fund. They were concerned about lawsuits in their church. So they bought their building in the charitable fund, and leased it to the church at a market value. The effect is, if the church gets sued, the building remains safe.

Tip number 9: “Use Second Mortgages” when you own property in your own name

People often get confused on this one. They say “do I have to go to the bank and get a loan out? But that isn’t the case at all. A better terminology would be “I help you keep your wealth safe and protect your assets against greedy golddigging scumbags am not sure if I have the number … )”

Basically I am giving a loan, NOT a mortgage. There may not be a mortgage (as this is the security type for the property, ie. a charge so you can’t sell it without paying out the person giving the mortgage.)

To get a loan you have to go through a tough approval process and pay $500 deposit. We are doing that with all the other clients, and they have responded except 3 kms worth.

Now … to explain

Let’s go back to Donald and Daisy. Donald owns 5 properties in his own name. Let’s say he is a surgeon. If he gets sued, it’s goodbye to his properties.

In the normal course of events, Donald is likely to have organized things because of our unique knowledge of the law, and out of the box strategies, to get advantage of negative gearing benefits, he needs to own the property in his own name.

So how would we do a second mortgage? Very simple …

What we can do is set up a family trust or company which creates a mortgage over Donald’s properties so if anyone sees the properties, they will see that there is not much available if they sue him.
For example, assume one property is worth $1 million and there is only a $250,000 mortgage to the Commonwealth Bank. Obviously the $750,000 equity is available to be taken.

So, what can you do? You set up a family trust and create through book entries and other transactions a $600,000 mortgage. The effect is, the asset is worth $1 million, there is a $250,000 mortgage to the Commonwealth Bank and also $600,000 is owed to the family trust, so only $150,000 is available. If the asset gets sold in a lawsuit, the person will get nothing. So there is no incentive to sue you anymore.

Can they undo the $600,000 mortgage? It is possible, yes, but it will cost them a small fortune so in practice, it is rarely challenged.

In summary, a second mortgage over assets is a loan more than a mortgage … but is a very powerful tip to protect assets, and give the idea on paper you are a “penniless bum”. Mind you, in saying that, I still do it, and recommend it, because it makes it harder for any creditor wanting your assets.

Tip number 10: “Go overseas”

If you live in Australia and are sued, but you own a property or other assets in an overseas company, the person has to go overseas and get a court order to get the assets.

So for example, if your overseas company has a friend or somebody else as director, it is very hard to get the money by Australian court order. And bankruptcy laws in Australia don’t help much either.
It is very expensive to get a court order, and again, unlikely to happen.

Facebook and Google and Ebay and Amazon, as well as MacDonalds, all do this. They have their assets held in one country, their management and control in another country, and they trade with their customers in another country. This saves tax as well as keeps their assets safe.

One thing to watch. The Australian government watch very closely who uses Facebook and what they say, especially if you are on their target list. Moving overseas can save you a fortune in tax, and put you in a more friendly tax jurisdiction.

Bonus Tip.  “Multiple Structures”

This is a great one by the way. Multiple structures, what it means is separate your risk of being sued with Assets. To give you examples,

• if you own property, have it in one trust.
• If you trade shares as well, you set up a second trust.
• If you run a business, do it through a third trust.
• Especially keep financial separation with your partner as much as possible!

Why? If someone sues you in your business, your property and shares are safe. Or if you are sued as a landlord with your property, your shares remain safe in a separate trust.

So the key is separate risk.

Bonus Tip. “Bankruptcy/Liquidation”

Let’s say you’re sued and go bankrupt or your company is put into liquidation (company equivalent to bankruptcy). For example, if you put your company into liquidation, it is the company’s assets that are available to creditors. Your personal assets usually remain safe (depending on all the facts, eg. if you have done personal guarantees, or certain tax debts).

That is, in liquidation, your personal assets are safe and you will not be liable for the debts of the company. That is, you have a get out of jail free card and start again.

That’s why companies are so powerful.

By contrast, with bankruptcy, everything is up for grabs in your own name and it is easier to get hold of your assets, and affect your credit rating.

In summary, company liquidation can protect your personal assets, as well as your credit rating and keep you in the game. By contrast, bankruptcy can not only result in losing your personal assets, but it can damage your credit rating for 7 years, which makes it far harder for you to build wealth.

I speak from experience, going through a liquidation years ago, and my company structure saved me being chased for impossible debts, especially my ATO BAS which would have cost me a fortune otherwise, and we should really outsource overseas for you.