The Basics of Trust and Business Asset Protection

Trust

A trust structure is a tool that provides flexibility to investors and businesses. It is a way for income to be distributed to lower income earners, assets to be safeguarded and wealth to be passed on to the next generation with little trouble and minimal or zero tax.

There is no “one-size-fits-all” form of trust, so be careful of someone who tells you there is. There are several factors to consider when determining the right type of trust for you. These include the type of business or asset, income type, financing, marital status, and vulnerability to being sued.

A trust is essentially a promise or an agreement. It involves a company or an individual agreeing to hold assets for the benefit of another. The trustee is the one who holds the assets, while beneficiaries are those who benefit.

Having legal control, though merely legal title, allows the trustee to purchase and sell asset, but has no right to own or enjoy the benefits of ownership. All legal documents, bank accounts, etc. contain the trustee’s name.

Such documents do not mention the beneficiaries’ name. They have beneficial ownership, meaning they enjoy usage, income, profits and other benefits of ownership, though the legal title is in the trustee’s name.

A trust is created to put a distinction between control and ownership. This way, assets are protected and profits are dispensed with in the most tax efficient manner.

Business asset protection

It is a sad reality that some industries and professionals are more vulnerable to being sued than others. Asset protection can benefit all business owners, but not all businesses.

Doctors, soloists and other professionals with significant plant or equipment, or maybe intellectual property, are types of businesses that must think about setting up some method of asset protection.

But remember – get sufficient insurance as a stop-gap before considering asset protection.

A business that owns plenty of expensive machinery, equipment or intellectual property should maintain these items separately from the trading entity.

In case a professional or business undergoes litigation, their holdings are safe as they are held by a different entity and utilised under a license agreement.

In such a case, what the owners have to do is to just wind up the trading entity, create a new one and draft another licence agreement.

A good analogy to use is likening a business to a tree, with the most vital part being the main trunk. Though branches may sometimes fall but the trunk continues to grow. All things possible are done to keep the tree growing and not let anything hurt it. Like a business or in investing, never neglecting it and always protecting it.

Seek advice and guidance from professionals regarding trusts and business asset protection. PJS Accountants offers a full range of services, including tax planning and compliance, accounting and SMSF services, and bookkeeping. For enquiries regarding our services, contact PJS Accountants.