The Big Five Asset Protection Mistakes to Avoid

Dominique Grubisa
Dominique Grubisa

Published 12:15 am 21 Jan 2020

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High cost assets like property require a lot of protection. DG Institute founder, Dominique Grubisa explains the mistakes you should avoid with your asset protection strategy.

You’ve bought an investment property and now you’re looking for the best way to protect your asset. This is a smart course of action regardless of the types of asset weather it be a high risk asset or low cost asset that you have invested in. With effective personal asset protection, you ensure that no financial setback can damage your strategy.

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The problem is that asset protection isn’t a simple thing. You need to make sure court cases won’t result in rulings that can reach down into your portfolio and accumulated wealth. In fact, it requires a lot of work to ensure you’re protecting assets from judgements the most efficient way. It’s one of the most important risk management strategies you need to adopt if you’re serious about investing.

This can lead to many new investors making key asset protection strategy mistakes in their attempts to create wealth protection plans. This article examines five of those mistakes. But first, let’s look at why asset protection planning is so important.

Why You Need to Think About Protecting Your Assets Now?

In an article for Your Investment Property Mag, Sarah Megginson talk about asset protection. She points to it as the secret weapon of successful investors.

She also highlights a key problem:

“Unfortunately, many investors fail to have even a basic (let alone adequate) asset protection strategy in place to cover their property holdings.”

Asset protection is so important because the world around you changes constantly. The conditions right now may prove favourable to you as a real estate investor. But you can’t guarantee that those conditions will last forever. Changes in your circumstances could create personal financial issues for you. If you don’t have adequate asset protection, your properties and other low and high cost investments are at risk from creditors. And a strong creditor’s claim can seriously impact the result of any settlement.

There are also external factors at play. Changing market conditions can affect the value of an asset, which could lead to cash flow issues. Even changes to national or state law can have huge effects on your property investing business.

As Megginson points out, the biggest mistake that investors make is to not look to the long term. There’s no accounting for what might happen in the future. But with the right asset protection strategy, you can at least guard what you’ve worked so hard to gain.

Now, let’s assume that you’re actively trying to protect your assets. You need to avoid these key mistakes that many investors make.

Mistake #1 – Investing Via a Regular Trust

There are many advantages to investing in property via a regular trust. They’re ideal when it comes to maximising your income and minimising your tax. 

Unfortunately, there’s still this misconception that trusts are the best option for asset protection. That leads to investors ploughing hours into researching the types of trusts to see which will work best.

None of them will, at least when it comes to protection.

In a recent interview, DG Institute founder Dominique Grubisa highlighted this fact. She pointed out that the law offers no protection to trust owners when a situation goes south:

“…The law is like a hot knife through butter when it comes to that they don’t look at who’s registered as owner, that’s just an alias for who benefits. They look at the beneficiary of the trust.”

In other words, the law has the power to look beyond who’s registered as the owner of a trust. Instead, it looks at who benefits most from the assets held in the trust. With that established, lawyers can then attack the asset based on that beneficiary status. 

The key here is that a trust can help you in regard to income and tax. However, don’t make the mistake of assuming that a trust will protect your assets if you run into problems.

Mistake #2 – Assuming That Changing the Tax Structure Will Help

Upon finding out about the above misconception, many investors try to circumvent it by changing the trust’s legal structure.

For example, they’ll go through the hassle of changing their tax plan and paying stamp duty on their properties.

Unfortunately, that’s a mistake as well. As Grubisa points out:

“…It won’t help you any way to change over and pay stamp duty or change your whole tax structuring. It’s just a nightmare that has no legal benefit.”

The law can still pursue you, even after you make all of those changes. So, you end up wasting a lot of time, money, and energy on something that won’t help from a legal standpoint.

Mistake #3 – Assuming You’re in a Better Position Than the Bank

Ownership of a property is of no benefit at all when it comes to asset protection.

However, many investors don’t know this and they’ll assume they’re in a better position than they really are. This leads to them getting a severe shock if they run into issues, only to find that the bank takes priority.

The bank will always beat a trustee in a bankruptcy case. After all, it’s the bank that’s the major creditor for the assets that you’ve bought. They’re the ones who’ve loaned you the money, which means they need to get paid first when things go wrong.

Mistake #4 – Protection After the Fact

Another key mistake that investors make is that they try to protect themselves after the fact. They have no strategy in place until something goes wrong. Then, they try to create one while dealing with legal attacks and requests for repayments.

That simply doesn’t work.

The best way to protect assets is to think of asset protection as insurance. Ideally, it’s something that you’ll never have to use. However, it’s still vital that you have it in place so that you’re prepared for the worst.

If you don’t, you’ll end up regretting it.

Mistake #5 – Trying to go it Alone

There are all sorts of reasons why people try to go it alone as investors.

Some get caught up in this romantic notion of becoming self-made millionaires. Of course, they’re not recognising the fact that no millionaire is entirely self-made. Everybody gets help along the way.

Others try to go it alone because it will save them some money. The cash that they’re not paying to professionals can go towards funding their investment activity.

Either way, you get the same outcome – a lack of knowledge when the stuff hits the fan.

Getting the right help may require you to invest a little money. But when it comes to asset protection, this means spending a little to protect thousands, or even millions, of dollars’ worth of assets.

That outlay may seem like a lot until you need help. But by that point, it’s often too late and you’ll end up losing a valuable asset because you decided to go it alone.

Get Help to Build Your Strategy

The good news is that you don’t have to go it alone. With the right help, you can build a robust strategy that protects your assets and leaves  your creditors with roadblocks to stop them in their tracks.

And it doesn’t involve completely changing your trust structure.

To learn more about asset protection, register now for our emergency webinar briefing where you’ll learn how to safeguard your wealth while you profit safely.

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Good Debt Vs Bad Debt With Dominique Grubisa - DG Institute

Lawyer, Asset Protection Specialist and Property Educator

Dominique Grubisa is a practicing lawyer with over 25 years experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author.

This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

About DG Institute

Founded in 2009, DG Institute strives to empower everyday Australians to grow and protect their wealth. Our goal is to provide direction, motivation and inspiration to our clients and help them perform at their very best. We do that through our professional services, in addition to teaching them how to grow their wealth through property and business education.

This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

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