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How a trust can protect your assets

08 Feb 2012

Trust expert Janet Xuccoa talks about how business owners and entrepreneurs can protect their assets in situations where things go wrong by looking at a common mistake she frequently sees – people think their assets are protected when in fact, their assets are at risk:

Most people understand they need to protect their assets from risks – risks that occur as a result of being in business.  For this reason, people often chose to take out insurance policies. Unfortunately, not many people understand that the best way to protect what they have is simply not to own the assets in the first place. How does that occur? By using a Trust.

Take, for example, Mr and Mrs Smith. They own a business that installs windows called Smiths Window Installations.  After much negotiation, they begin working for a developer, installing many windows in the new apartment block he is building. The developer goes bust and the Smiths’ business doesn’t receive payment. But that’s not the end of the story; because Smiths Window Installations hasn’t been paid, it can’t afford to pay the  manufacturing company who supplies the windows to it. Ultimately, Smiths Window Installations are sued, and so are the Smiths personally. The sad ending to this story is the Smiths lose everything they have, including their home.

If an ounce of prevention had been taken before the Smiths went into business or at the very least, during the time they were in business, their home may well have been saved. All that needed to have been done was for the Smiths to put their home in a Trust.

Of course, simply transferring assets to a Trust is not enough.  The documentation noting the transfer has to contain appropriate clauses to ensure full protection, and the Trustees of the Trust have to run it correctly.

Coming soon - setting up a Trust: getting started.

Janet Xuccoa is a Partner of Gilligan Rowe & Associates LP (GRA). She holds accounting and law degrees and is a well known author and presenter on trust and asset planning concepts.