In this article, Kent France, an associate of Wynn Williams
& Co, gives some sound advice for the future regarding
Anyone who is involved in business should take time to think
about the way they organise their affairs so that assets built
up over a lifetime are not at risk from creditors.
Asset planning should start as early as possible and be a
co-ordinated effort between an experienced asset planning
lawyer and the business's accountant.
Sole traders and people in partnerships are generally
directly liable for liabilities arising from the business's
operations. Even when trading through a company, the
shareholders and directors can incur liabilities personally,
such as claims for faulty work and breaches of their duty as
directors. Often, too, the owners of a business will have been
required to give personal guarantees of their leases or
guarantees to their bankers under banking facilities, all of
which can lead to personal liability. If no other asset holding
structures are in place, all of the person's assets,
including the family home, can be exposed.
By contrast, a good asset plan will have the following
business assets will be held separately from personal and
the principal business assets will be owned separately
from the business to protect them from risks arising from the
operation of the business;
the structures involved will be flexible enough to meet
changing personal, business, legal and tax requirements.
In many situations a trust can be used as an effective way
of holding personal or business assets and shielding them from
creditors' claims. A trust arises when a trustee holds
assets on behalf of a person or a group of people (called
beneficiaries). The person establishing the trust can specify
who the trustees and beneficiaries will be. It is usual to have
more than one trustee.The group of beneficiaries may include a
A common form of trust in New Zealand is the discretionary
trust. The trustees have the right to decide which of the
beneficiaries will receive income and capital from the
trust's assets from time to time. The beneficiaries do not
have a direct ownership right to the assets held by the
trustees and those assets are separate from assets owned by the
In order to separate business assets from the business
risks, the business assets can be owned by another entity and
leased to the business.
The lease is a useful linking device and needs to be set up
as part of the overall asset plan. It must be drawn carefully
so that obligations between the structures are commercially
realistic, and to allow the lease obligations to be ended if a
claim is made.
In all cases the structures used to hold assets and operate
a business need to be thought through in an organised manner.
The way in which an asset plan is built up will depend on the
type of business, the assets involved, the individual people
and their family circumstances. Taxation issues always need to
Usually, when new structures are created, it is necessary to
transfer assets to those structures. Because of gift duty
considerations this cannot be done at once, and to avoid paying
gift duty it may take many years to complete the transfer. For
that reason asset planning needs to start early so that the
plan is properly implemented before it is needed.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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