I want to invest, but I want to protect my investment. How do I do that?

No one starts a business or buys an investment intent on becoming bankrupt. Asset protection focuses upon protecting particular assets when (not if) the asset owner becomes bankrupt. We are regularly asked to advise on the safest structures to use when investing. Whether running a business or buying an investment, there are pros and cons in whatever structure is chosen.


With that in mind, we believe that discretionary trusts (like our Bloodline® Trust) provide the most flexible and protective structure for investment. But, of course, it will depend on how you use the trust!


The following Solution in Action discusses establishing a Bloodline® Trust for investment with an eye on asset protection.


THE SCENARIO


Jane and Jason Richards currently own the following assets in their own names:

  • Principal place of residence - $3m;

  • Share portfolio - $500,000.00;

  • Rental properties - $1m.


Jane and Jason operate a small construction and design business and have both provided personal guarantees to suppliers. They have found business quite difficult since the COVID-19 and have recently had a substantial bad debt as a result of the collapse of one of their major clients.


Jane and Jason are concerned about the security of their personal investments if something happens to their business.


THE SOLUTION


An Inter Vivos Bloodline® Trust is prepared now, to hold all new investments.


The discretionary capital beneficiaries of the Bloodline® Trust will be Jane, Jason, their bloodline and others as nominated by Jane and Jason.


Under the rules of the Bloodline® Trust, in laws (that is the spouses of Jane and Jason’s children and grandchildren) may, at the trustee’s discretion, receive income, but investments and other capital assets are prevented from passing outside the bloodline.


Investments currently held personally by Jane and Jason are transferred to the new Inter Vivos Bloodline® Trust.


  • Capital gains tax and stamp duty implications will need to be addressed.

  • If these prove to be too big a hurdle, there are other strategies that can be employed to provide asset protection.


THE OUTCOME


Since Jane and Jason’s Inter Vivos Bloodline® Trust now owns the investments (home, shares, rental properties), the investments are quarantined and have maximum protection from any future bankruptcy or attacks by creditors, litigation, and other business risks.


There are some bankruptcy timing rules that need to be considered for complete protection.


Any future investments will be similarly protected if purchased by the Inter Vivos Bloodline® Trust rather than by Jane and Jason personally.


Jane and Jason will have the flexibility to distribute income from their investments to a wide range of discretionary beneficiaries in the most tax-effective manner possible.

Jane and Jason can determine when control of the trust assets pass to others, either during their lifetime or upon their death.


SUMMARY


When a Cleary Hoare Bloodline® Trust is used to hold personal and investment assets:

  • The assets are quarantined from business risks;

  • The assets are protected in the event of an attack on a beneficiary as a result of bankruptcy or pursuit by creditors;

  • Control of the assets is retained;

  • The flow of assets is limited to the bloodline;

  • Control and benefits pass safely to particular beneficiaries;

  • Tax effective distribution of investment income to discretionary beneficiaries results in the best possible taxation position.


CONTACT


Please contact one of our specialist solicitors to discuss asset protection, estate planning or trusts in general, or your specific cases.



ADDRESS

Brisbane
Level 2,1 Breakfast Creek Rd
Newstead QLD 4006

Sydney
Level 9, 189 Kent Street

Sydney NSW 2000

Perth
45 Ventnor Avenue

West Perth WA 6005

CONTACT

Brisbane

Phone: (07) 3230 5222

Fax: (07) 3252 1355 

Sydney

Phone: (02) 9262 5550

Fax: (02) 9299 5849

Perth

Phone: (08) 9429 8883

Fax: (08) 9429 8800 

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