Advice for Owners
Creditor Proofing Assets
Every business owner should be concerned about creditor proofing assets. It’s important to understand how owner-managed businesses can protect themselves in times of financial distress. Consider these suggestions:
Transfer Assets Out of the Company
- Place capital assets in a separate holding corporation so that subsequent legal claims that arise in the
operating company do not affect these assets.
- Lease the assets in the holding corporation back to the operating company. It may be easier to sell the
operating company in the future.
- Protect cash assets from potential claims. Pay tax-free dividends from the operating company to the holding
- Establish a Retirement Compensation Arrangement (RCA). This removes funds from the corporation as a tax deductible expense and places the cash into a creditor-protected Trust.
Secure the Business Owner’s Assets
- Secure the shareholder loans by establishing a general security arrangement to provide the shareholder priority over all unsecured creditors.
- Transfer assets to the lower risk spouse on a roll-over basis for tax purposes. If there were a future marriage breakup, this type of property would usually be equally divided between the spouses under the provincial family legislation, regardless of who owns title.
- An estate freeze would transfer the future growth of the assets to other family members.
- Transfer the assets into a Discretionary Family Trust to protect them from creditors. A Discretionary Family
Trust permits the transfer or to retain control over the assets. This would produce a taxable disposition unless
the transfer is to a qualifying Spousal Trust or a Joint Partner Trust or an Alter ego trust.
Book some time in with your accountant to discuss the what options work best with your specific situation. If you have questions or concerns about your financials let’s connect. We’re here to help you and your business succeed!