The question arises , Do you need to have different corperate trustees for your different trusts as an added level of safety or can you have one comp as trustee for all of them.
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Changes to Trusts
- Thread starter geoffw
- Start date
Jas said:
How long's a piece of string Jas
back of the envelope stuff but:
1) you'll not get much change out of $2k to set up corporate trustee and trust (some advisers will be cheaper than others).
2) annual returns for companies are about $200 each
3) accounting fees for returns for trust and cos ??? (altho I'm sure that NickM and DaleGG are eminently reasonable...
4) ongoing legal and accounting advice ??$
5) administrative hassle and paperwork $opportunity cost
6) sleeping soundly at night behind the protective shield of your trusts - *priceless*
On that basis I think $1-2m net real estate equity in the one trust is enough to justify the cost (of course that could be just one Sydney property
) over that point I'd think about kicking off a new structure.But, you can stack as much share and managed fund wealth in the one discretionary trust as you like (caveat - note that a HDT still has a chink in its armour).
As noted in previous posts, I think its prudent to separate those truly passive, don't interact with the world, type assets from the passive assets which people can trip over...
Cheers
N.
GreatPig said:
search for old posts on hybrid discretionary trusts. in a nutshell if you own the units in a hdt in your own name (so that you can -ve gear the interest on your borrowings to buy the units) then if you were successfully sued, the units form part of your assets which could be used to meet any judgment and would form part of your bankrupt estate in a worst case scenario...
Not necessarily the end of the world but v. inconvenient.
Cheers
N.
NigelW said:
Hi Nigel.
"If the trust gets sued" is this actually the trustee who's getting sued?
Is this the same as saying "if you are sued in your role as trustee your personal assets and those of other trusts you control are safe"?
I found the following statement in my notes from somewhere and wondered if it is incorrect:
If the trustee is sued in their role as trustee then their liability is not limited by the extent of the trust’s assets, therefore if the trustee is an individual their personal assets are also at risk.
NSW judges are dumb and wimpy
Further to the above post there's now a NSW decision (Intagro Projects v ANZ) where the judges all thought the South Australian case Hanel was wrong but still applied it! What the...
Another August NSW decision (Edwards) has commented that the South Australian decision is "unconvincing" but because s197 wasn't directly relevant to the case in question their remarks don't count in the scheme of things (ie they're the equivalent of a bunch of mates standing round in the bar with a few beers saying "m..a..t..e that referee musta been blind!!!" )
So what does this mean? Firstly, remember the hitchikers guide to the galaxy - "Don't Panic!"
Secondly, it means that if a company acting as trustee of a trust is sued and the trust assets are insufficient to meet a successful claim then the directors will be personally liable REGARDLESS of whether or not the trustee's conduct was in breach of trust and whether or not the trust deed excludes the trustee's right to an indemnity. IMHO that is plainly the wrong result based on the wording of the section and when you trace the history of its development through the state companies acts and corporations law.
There have been a number of submissions to the government by professional bodies about the impact of the Hanel case but there's no word yet on whether the law will be clarified...
What should you do? - Until this mess is sorted out this is another good reason to, as I've said in the past:
1) use multiple trusts and
2) if you have any assets in your own name keep them geared to the hilt with your bank and put the money you've borrowed into your trust structures...
3) maintain adequate insurance.
Realistically if you've got a nice safe PAYG job and all your trustee does is own some rental properties then your source of risk is going to primarily be injuries to your tenants and trades people at those properties. Adequate levels of insurance against these risks is reasonably affordable as your first line of protection after ensuring that your properties are well maintained and all maintenance items are attended to promptly by qualified trades people.
Watch this space...
Cheers
N.
NigelW said:You're a crafty one aren't you Duncan!
Without wanting to delve too deep into the legal mumbo jumbo, this is a really contentious area in some states. As an aside, it often comes as a shock to some people that there are areas of the law where either different answers to the same question can arise in different states or where there is in fact no definitive answer...
The starting point is that the trustee legislation in each state and territory gives trustees a statutory right of indemnity - ie this applies even if the trust deed didn't provide for this right.
The heart of the question then becomes twofold:
1) Can this statutory right of indemnity be switched off in the trust deed? Answer is that only in WA, Vic and Tas is that allowed under their respective trustee legislation.
2) Even if you're allowed to switch it off under the trustee legislation, is the trustee's right of indemnity actually impossible to switch off because it is so integral to the office of being a trustee? The answer here is, at the moment, yes in Victoria, but maybe not in WA and Tas (but based on NSW and Qld reasoning - gee gets confusing doesn't it!
But when a corporate trustee is involved the story doesn't end there... an innocuous little section of the Corporations Act can have BIG consequences for directors of trustee companies.
What section 197 says, in a nutshell, is that if a trustee company incurs a liability and loses its right of indemnity (due for example to it acting outside what the trust deed permits) then the directors of the trustee company are personally liable for the company's debts! Ie this is a complete reversal of the usual scenario of limited liability for shareholders and directors being liable, generally speaking, only for insolvent trading...
SO what this means in a nutshell is that you can't have a $2 company act as trustee of your trust, as a director get your trustee company to do something in breach of the trust deed and then seek to absolve both the trustee and yourself as director on the basis that: a) the company and not you as director is the party that has done wrong and b) the company can't use the trust's assets to reimburse itself because it's breached the trust deed. (Apparently that sort of despicable conduct became common in the 1970s and in the mid 80s the predecessor to section 197 was introduced to curb that conduct).
As another aside there's currently a big concern about the scope of section 197 due to a case in your home state. 2 out of the 3 foolish IMHO South Aus judges decided that it's not only where the right to indemnity is lost that s197 kicks in, but instead it operates where there is a right to indemnity but the trust assets are insufficient!!!
Having said all that, I still reckon trusts are GREAT! Just remember that they're not a cure for all ills. People need to remember that the law has evolved since Bondy etc...partly in fact due to Bond etc.
Cheers
N.
Further to the above post there's now a NSW decision (Intagro Projects v ANZ) where the judges all thought the South Australian case Hanel was wrong but still applied it! What the...
Another August NSW decision (Edwards) has commented that the South Australian decision is "unconvincing" but because s197 wasn't directly relevant to the case in question their remarks don't count in the scheme of things (ie they're the equivalent of a bunch of mates standing round in the bar with a few beers saying "m..a..t..e that referee musta been blind!!!" )
So what does this mean? Firstly, remember the hitchikers guide to the galaxy - "Don't Panic!"
Secondly, it means that if a company acting as trustee of a trust is sued and the trust assets are insufficient to meet a successful claim then the directors will be personally liable REGARDLESS of whether or not the trustee's conduct was in breach of trust and whether or not the trust deed excludes the trustee's right to an indemnity. IMHO that is plainly the wrong result based on the wording of the section and when you trace the history of its development through the state companies acts and corporations law.
There have been a number of submissions to the government by professional bodies about the impact of the Hanel case but there's no word yet on whether the law will be clarified...
What should you do? - Until this mess is sorted out this is another good reason to, as I've said in the past:
1) use multiple trusts and
2) if you have any assets in your own name keep them geared to the hilt with your bank and put the money you've borrowed into your trust structures...
3) maintain adequate insurance.
Realistically if you've got a nice safe PAYG job and all your trustee does is own some rental properties then your source of risk is going to primarily be injuries to your tenants and trades people at those properties. Adequate levels of insurance against these risks is reasonably affordable as your first line of protection after ensuring that your properties are well maintained and all maintenance items are attended to promptly by qualified trades people.
Watch this space...
Cheers
N.
"Secondly, it means that if a company acting as trustee of a trust is sued and the trust assets are insufficient to meet a successful claim then the directors will be personally liable REGARDLESS of whether or not the trustee's conduct was in breach of trust and whether or not the trust deed excludes the trustee's right to an indemnity. "
I refer to the above. I have just discovered this very informative thread but wondering if the "trust" I have made bold in the above should read as "company"
It's bloody confusing stuff. - if I am wrong here then I must have misunderstood everything before.
Cheers,
Ed.
I refer to the above. I have just discovered this very informative thread but wondering if the "trust" I have made bold in the above should read as "company"
It's bloody confusing stuff.
- if I am wrong here then I must have misunderstood everything before.Cheers,
Ed.
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