How to protect your assets from your creditors?

It is possible to transfer residence and investments to an asset protection trust.

Adrien and Lucille (fictitious names) have decided to spend their winter in Florida since the beginning of the retreat. They have accumulated a wealth of approximately $ 850,000 (residence, RRIF, TFSA, non-registered investments). An unfortunate accident happens to them during their trip to Florida and they have just received a lawsuit from a Florida law firm for $ 370,000 for injuries to a US passenger.

Our two retirees are really nervous about losing their hard-earned assets. Adrien and Lucille wonder if they could have done anything to protect their heritage.

Asset Protection Trust

All assets held by the trust are owned by the trust. It is possible to transfer assets from one authorized entity to another.

In our example, our two retirees could have transferred their residence, their investments to an asset protection trust. Since the responsibility for the accident lies with individuals, the assets that would be owned by the trust could not be used to pay possible damages to our beneficiaries. It is also important to know that the income generated from the assets of the trust is the property of the trust. However, it is possible to attribute these to the beneficiaries. Beneficiaries could receive these amounts for their needs.

Tax consequences

You have to wonder what happens in terms of taxation if you decide to do this kind of protection strategy. When transferring assets, the Tax Act assumes a disposition of assets for the individual. However, this provision will be made at its tax cost therefore without tax consequences.

In the case of income, if it is not allocated to the beneficiary, it will be taxed at the trust level at the highest rate in the Tax Act, a combined federal and Quebec rate of 53% currently. This tax expense can be reduced if the trust allocates investment income to its beneficiary. This allocation will reduce the income of the trust and be included in the individual’s income. Thus, if the individual has a lower tax rate, we will return to the same situation as if there had been no trust.

Does this apply to you?

This strategy is interesting for people who travel a lot abroad and especially in the United States, where the risk of prosecution can be significant (eg: accident, serious illness occurring abroad if your insurance coverage does not apply). is not adequate). It also applies if you have had professional activities that may make you personally liable for them. You must have unregistered assets, for example, investments, stock market shares, residence, cottage, private company shares of significant value, and the loss of those assets could put your retirement at risk.

Company assets: mini guide

The company assets are made up of all the means, whether they are tangible and intangible economic assets, be they rights such as credits, be they constraints on the assets, such as debts, that a company subject has at a given time.

The company’s assets are made up of assets and liabilities which are part of the balance sheet.

The assets of a company undergoes continuous changes, it can happen, in fact, that some goods leave the production cycle because they have exhausted their economic utility ; it may happen that certain goods in stock have been sold and are no longer available; in the same way, it may happen that the cash and cash equivalents have been used to meet payments with suppliers and are not present either as financial values in the fund or as a form of deposit in the current account.

The qualitative aspect of the heritage

In the qualitative aspect, the company assets are the set of uses in productive factors associated with the corresponding sources of financing.

Among the activities, we find the investments that are divided into:

  • tangible, intangible and financial fixed assets. Therefore all the instrumental goods destined to be used in the enterprise for more productive cycles, such as buildings, plants, vehicles.
  • Intangible assets, such as equipment costs, patents, trademarks, licenses, research, development and advertising, goodwill.
  • financial fixed assets are represented by ultra-annual receivables and long-term investments in other companies, other securities, and treasury shares.

The circulating asset is divided into:

  • Inventories of finished products and goods, raw materials and consumables intended for resale.
  • Loans to customers, tax credits.
  • Liquid funds deposited with banks or postal current accounts, checks, cash, and cash on hand.

In the liabilities we find:

  • payables to suppliers, tax payables, amounts due to employees for severance indemnities, payables to banks.
  • Equity or equity is the difference between assets and liabilities and represents the internal wealth, the equity, the consistency of the assets owned by the company, and expresses the ability of the company to finance itself with its own means without resorting to forms external financing, ie third-party capital, also called debt capital.

Asset protection

Before discussing how to strengthen the corporate assets it is appropriate to give some hints on how to protect it. First it must prevent risks while controlling the information, in fact, if these are available to all will be difficult to defend against potential competitors. Subsequently, it is necessary to identify which are the risks to which the company is exposed, by whom it is possible to suffer them and put in place measures aimed at containing the risks. Therefore it is necessary to activate a procedure that allows the identification of confidential information and one for their treatment.

Asset protection IT system

In order to strengthen the company’s assets, it is necessary to install good software, a computer protection system, a password system and an internal regulation that establishes sanctions in the event of violations.

Price lists must be prepared so that if they are lost they do not provide useful information to the competition, furthermore, it is necessary to engage and respect those who treat confidential information with a non-competition agreement.

In SMEs, the knowledge of production and technological processes, the ability to innovate, the knowledge of brands and patents, is fully shared among human resources, as the roles, functions, skills and finally the same knowledge are exchangeable among employees. , therefore it is very simple that confidential information is transferred to third parties.

Heritage protection instruments

One of the tools that in recent years has seen at least one minority shareholder become part of large entrepreneurial realities is private equity, in fact, Italian companies have shown themselves willing to open their capital to finance growth.

The companies are committed to seeking new forms of financing to rebalance the relationship between equity and third-party means, but what has contributed to economic growth has also been the incentives coming from the ACE, defined as an aid for economic growth.

Other instruments envisaged for strengthening corporate assets are the opportunity to reinvest profits in the company, to increase capital and the possibility of entering the Stock Exchange to raise new capital and make it easier for the equity complex to enter a private equity fund

Direct income incentives

The following financing instruments, such as equity loans and private equity, contribute to strengthening corporate assets.

The first participatory loans are divided into:

  • Medium-term loans that anticipate future increases in net worth by means of payments by shareholders for future capital increases against payment,
  • Provision of profits to reserves,
  • Self-financing or resources of the controlling shareholders

Participatory loans

  • Confide can benefit from the guarantee
  • They present easily assessable and manageable risks for a credit institution.

The second is Private Equity:

contributions to equity capital or leveraged buy-out financing of companies not listed on the Stock Exchange through specialized intermediaries.

The investor with Private Equity is motivated because he has expectations of high returns and/or increases in the value of discounting his medium-term participation.

Private Equity allows an immediate increase in equity.

Indirect assets incentives

One of the incentives that contribute to the growth and strengthening of company assets is the transformation into a capital company or the aggregation of companies directed more towards individual businesses and partnerships with a sufficient asset value.

The aim is to allow a separation between the family assets and the company balance sheet; as well as the management of personal finance from company finance.

  In conclusion, it is possible to affirm that it is necessary to allow the release of personal and real guarantees on family assets to incentivize the strengthening of corporate assets.

For this purpose, it is possible to receive incentives to cover the costs of transforming into SRL and forms of interest-bearing investment in company liquidity with the operational return, an incentive to shift part of the family’s financial wealth to the company.