Asset protection - Structure

[devank]

What's the point of going to the trouble of a trust if the trustees are natural persons?

Only the trustees of the Piggy bank trust are natural persons. This trusts only holds shares of the trading company. So it can't be responsible for any actions of the trading company.

I can't understand why the negatively geared properties are not in some form of trust and profits flowed from trading trust into "negatively geared property" trust to obtain tax benefits.

Those are exsisting properties so can't do anything about it now.

I was thinking of adding future IPs under the trust so at least the whole assets are divided into two.

 

[Terryw]

Devank

What are you trying to achieve? And what/who are you trying to protection your assets from?

 

[devank]

Devank

What are you trying to achieve? And what/who are you trying to protection your assets from?

1. Trying to protect our current assets from any lawsuits which may come from the business activity.
2. Distribute the income generated from business, shares and future IPs.

 

[Aaron_C]

It is pretty standard for any trust (family, unit or otherwise) not to have a natural person as a trustee due to liabilities that can arise. Also issues such as removing the trustee, replacing the trustee (in case of death etc) which would not happen under a corporate trustee (because companies do not die and all it takes is a change of a director rather than a change of the trust deed). Plus from a practical perspective it's harder to separate trust assets from personal assets for an individual.

The only exception is if the trustee is an executor of a deceased estate as appointed by a will.

 

[Terryw]

1. Trying to protect our current assets from any lawsuits which may come from the business activity.
2. Distribute the income generated from business, shares and future IPs.

Need to be more specific.

If you are going to be conducting business, then you should isolate the business by using a company to limit liability. Directors can sometimes go down with the company, and are often required to give personal guarantees. So it is a good idea for a director to be limited to 1 person and for this person to hold no assets. This person should also avoid giving money to a spouse or to a trust to buy property etc.

The business being run by a company could be run by the company as trustee, but the company and trust shouldn't have any other assets as these will be at risk if the business is sued.

It is generally a good idea to have a company as trustee to limit liability to the company. Holding shares is risk free - meaning that shareholders don't get sued because of their role in the company. So it is generally safe for a person to be trustee of a trust that only holds shares. The problem is passing on control to someone else. Changng trustees would mean changing title of the shares - which may be an administrative hassle in most cases. Shares of private companies could also attrach stamp duty in some states, especially if the trust is no set up a particular way.

If you die the trust assets don't form part of your estate, so won't pass to your executor. They will remain in the trust and the trustee will be replaced as per the instructions in the deed.

You also should be careful how you use the structures. How you transact things and control things. Also who you tell what - loan applications etc. Remember the trust assets are not your own.

(I have a matter now involving a lawyer who set up a company as trustee. Someone owes the trustee money, yet he has put himself- instead of the trust - down as a creditor. Even lawyers don't understand trusts!).

 

[Terryw]

You also mention current assets.

The persons holding these assets will be exposing them to a certain extent if they are directors or trustees

 

[devank]

Thank you Terry, Aaron & Mike.

I have updated the structure (attached) based on the your suggestions.

What we have now is in Green. Few IPs and two very small businesses all under our both names.

What I'm trying to achieve is something not overly complicated or costly or take up too much time to manage but at the same time we don't loose EVERYTHING because something went wrong. I will have insurances in place and also no cash is going to be held anyway.

I understand that Director may be liable for actions of the trading company hence the person holds the assets shouldn't be in that position. Well.. who can I really have as a director?!

IF in the future, IPs (under the same trust) and the business get too big then may be I can move the business to another trust provided not too much capital gain tax invloved.

 

[coastymike]

Keeping your active assets e.g. businesses in the same structure as your passive assets e.g. shares and positive cashflow properties could lead to you loosing all of these assets in that structure.

From an asset protection point of view terrible but this doesn't seem to be sinking in. Good luck. Let's hope those small businesses don't become larger businesses. Let's hope those small business don't do anything negligent in any way shape or form as the passive assets could well be lost.

So you end up back in the same position with the only assets being the properties in your own name.

 

[Terryw]

You can't really move things after setting them up and attain any protection, especially in the short term.

I wouldn't have anything in the trading trust except the trading business.

Consider backup appointors and asset protection.

Consider estate planning.

BTW, i have a client who's family trust had been taken over by the family accountant when his dad died because the accountant had shares in the trustee company. The son was back up appointor but didn't know or understand what this meant. So you must discuss you plans with family so they all know what the structure is and what to do in the event of death etc.

It also comes down to how you use the trusts and structures too. If personal guarantees are given, watch out. Watch out when making declarations. Don't treat trust assets as your individual personal assets. make sure you know the rules under the corporations act, especially directors duties, how to arrive at company decisions, conflicts of interest etc.

Read the trustee act for the state that governs your trust and read the deed thoroughly. Know the duties of the trustees and the rights of beneficiaries etc too.