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Keeping what is yours, yours - Asset Planning

Business ownerIf you are in business, and a huge number of New Zealanders are you should take time to organise your affairs so that assets built up over a lifetime of work are not at risk.

Planning should start early and can be a co-ordinated effort between an experienced financial planner, lawyer and accountant. The financial planner is regularly best placed to coordinate the implementation of asset planning.

Those people in business as sole traders or partnerships are generally directly liable for all of the business’s operations. Even when via a company, and more so since 1993, shareholders and directors can incur liabilities personally, claims for faulty workmanship or breach of duty among other obligations. Owners of a business may have given personal guarantees to bankers or covering leases.  If no asset owning structures are in place, all assets including your family home, boat and bach can be exposed.

The prime objective of good asset planning is security and may include the following;

  • All business assets will be owned separately from any personal and family assets;
  • The major business assets, land and buildings or significant plant and equipment will be separate from the business to protect them from risks arising from the operation of the business;
  • In all cases the structures involved need to be flexible to meet future, changing personal, business, legal and tax requirements.

A trust can be an effective way of holding personal or business assets; 

  • A trust holds assets on behalf of a person or a number of people (these are the beneficiaries).  
  • The settlor establishing the trust can specify who will be trustees and beneficiaries.  
  • Normally more than one trustee is used.  
  • A trustee may be included as a beneficiary.

With a discretionary trust in New Zealand the trustees decide which of the beneficiaries will receive income and or capital from the trust’s assets. Beneficiaries do not have an absolute right to the assets held by the trustees and these are also separated from any assets owned personally.

To distance business assets from risks, the business assets can be owned by another entity and leased back to the business. This is a useful separating device to retain assets at arms length and needs to be considered part of the overall plan.
The planning, to hold assets and operate a business, needs to be considered carefully. The final plan will depend on the people, the business, the assets involved and family circumstances. Of course, depreciation, wider taxation and of course insurance ownership issues need to be considered carefully as well.

When any new structures are arranged, and to complete the transfer assets to these, there are currently gifting considerations as well. Until 1 Octoner 2011 to avoid paying gift duty it may take some years to complete the ownership transfer. But from 1 October gift duty will be abolished. There are still this reasons planning needs to start early to ensure the plan is properly implemented well before it is needed.

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