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There are five asset protection layers.
Asset Protection Layers
How can you protect your personal assets from creditors, the ATO and so on? How can you reduce the risk?
Andrew Andreyev of ADLV Law in Sydney and Adelaide will tell you how and discuss the five layers of asset protection with you. Neither protects you 100%, but they all add up.
Here is what we learned but please listen in as Andrew explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
Asset Protection Layers
There are five layers of asset protection. You can use one, some or all. Here is what they are.
1 – Contractual Insurance
This is your professional indemnity insurance, your business insurance, third-party liability insurance, or whatever it is called. Names differ based on which business and industry you are in, but they all try to do the same thing – a contract to indemnify you if you get sued.
2 – Corporate Veil
This is about moving your business into a company. A company comes with a corporate veil. You are no longer personally liable. There is a corporate veil around your business.
In the interview, we put the corporate veil and silos together, hence only counting four layers. But they are really two different things. A lot of businesses use the corporate veil – operating through a company – without using silos for structural insurance. Hence we have separated them here. But of course just semantics.
3 – Asset Protection Silos
Asset protection silos give you structural insurance. You put separate parts of your business into separate silos. Please listen to episode 396 where Andrew Andreyev discusses this in detail.
For structural insurance, you move each project or business into a separate operating company.
Have the cash in a separate finance company, often the holding company, which then provides secured loans to your group.
Put all your tools, equipment or other assets – if of substantial value – in an asset company.
And then run all your staff, HR, and other services through another general services company.
This way you have created separate silos where the creditors of one can’t come after the assets of another, protecting your business and private assets.
4 – Move Assets away from Risk
If you are the at-risk spouse, move all assets away from you into your spouse’s name or a family trust with no connection to you. So you are neither the settlor, trustee, trustee director or appointor nor a beneficiary.
5 – Asset Protection Trust
Create an asset protection trust that then holds a charge over your assets, for example, a mortgage over your family home or an All PAAP over your other assets. Having these charges over your assets makes it harder for creditors to grab them
Setting up an asset protection trust also gets called doing an equity split. Andrew talks about this in episode 398.
Summary
So these are the five layers of asset protection, corporate veil, contractual and structural insurance, equity split, and moving assets away from you.
But of course, none of these layers is 100% watertight. Every layer can get pierced.
Your professional indemnity insurance has terms and conditions that you might not meet when the going gets tough.
DPNs can pierce through your corporate veil.
Courts can attack your corporate silos.
Liquidators might claw back assets you transferred to your spouse or trust.
And a court might rule against your asset protection trust.
But …..the more layers you have, the more protected you are. Two layers are better than one. Three are better than two. And so on.
So this is a short summary of this episode. But please listen in since Andrew Andreyev explains all this much better than we ever could.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 04 October 2024
Tax Talks spoke to Andrew Andreyev - Principial at ADLV Law - for more details.
