Are Trusts always the answer?
Reply: 2.1.2
From: Paul Zagoridis
I lost 10 properties. I wouldn't have lost them all if they were structured in a trust.
On 3/27/02 4:55:00 PM, Kevin Forster wrote:
>
>Just a quick note because I'm
>expecting to get flamed for
>quoting heresy on this forum,
>but are trusts always the
>answer?
No flames hopefully Kevin.
Trusts are not for everyone. Especially not for someone planning to only have 1-2 IP's Not worth the cost. But if Gordon is worried enough about his wife being a partner in a firm, he could think of using a robust structure.
>1. What percentage of IP
>owner owns a substantial
>portfolio of IPs? From
>statistics, the majority of
>people have 1-2. Losing 1-2
>properties may be unfortunate
>but you can rebuild.
That's two different groups, substantial portfolios vs majority of people. Most deceased estates with multiple IP's (that I've seen) have a corporate vendor. That implies a trust or holding company.
My landlady is married to a "prominent Sydney racing identity". The landlord is a company.
I think trusts and/or holding companies are in significant use.
>2. What is insurance for?
>Tenant electrocutes himself?
>(What the hell was he doing to
>have that happen?) Insurance
>covers it. Have a car
>accident? Insurance.
>Adequate insurance covers the
>majority of situations.
I know of two car accident situations where the insurance company declined cover. 1) driver had a blood alcohol reading over the limit (this man did not normally drink and did not drink more than the formula commonly known). 2) Car rolled while driving on a private rural road.
Regarding electrocution? See the High Court in Northern Sandblasting Pty Ltd v Harris (1997) 188 CLR 313. While it now seems that the court is backing away from that stance, it was a rude shock to the landlord.
If you intend to have a significant asset base why wouldn't you protect it? Structuring is a form of insurance. The Packer's, Murdoch's, Moran's, Pitt's and most of the BRW Rich List families have trusts and/or holding companies. The Kennedy, Onassis and Gates clans are similar. I sense a pattern is emerging. They didn't structure themselves AFTER amassing their wealth.
Insurance should cover you. That's what it's for. But not everything you do is insured.
A successful accountant I know insisted that the executive of the Body Corporate be insured before agreed to join the executive. Good prudential planning.
>3. Let see some costs on
>owning a trust. If you have
>1-2 properties is it worth
>putting it in a trust? Given
>that the majority of people
>have 1-2 IPs, is a trust
>always the answer?
A trust is never always the answer. As a matter of fact it is rarely the answer unless one intends to amass a fortune.
Costs have been stated before by Dale and others. For 1-2 IP's in a trust with a corporate trustee it's would be $1K-$3K in setup fees and about the same in annual costs (including tax returns). So is $1K per annum too much? If you stop at 2 IP's it is.
>My final point is that some
>people are so frightened of
>losing the little they have
>that they fail to have
>something that's worthwhile
>not losing.
True. True.
But I don't think Gordon is in this situation. There is a difference between fear and caution.
>Just some ramblings
Very good challenges raised in them.
Paul Zag
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