Company / Trust Structure

From: Cathy Baxter


Hi
Yesterday i attended the first meeting of Newcastle's Freestyler group and had the pleasure of listening to TW for the first time. She sure is an inspiration. Thanks for being there, TW.

One of the things I came away with was how much she impressed on us to investigate owning property and other assets in a company / trust structure.

Now here's the really dumb question, I know, but can someone explain to me in plain english - i really am stupid - how this type of structure actually protects your assets?

I've read the thread on the Apprentice Millionaire Guide on this topic but this probably raises more questions than answers for me. For example Michael G raised some issues about the courts unravelling trust structures - can this happen?

Cathy
 
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Reply: 1
From: Paul Zagoridis


Hi Cathy

For a start I recommend reading Renton's Introduction to Trusts book.

Trusts protect assets that are owned by the trust on behalf of a beneficiary. So if you are sued personally, assets in the trust cannot be touched.

The Family Court of Australia can and does ignore trust structures and looks at beneficial ownership. They can legally do this.

Courts in the US have started ordering citizens to repatriate assets held in offshore trusts. They have held people in contempt of court and imprisoned them until they've complied. This is normally only done when the US Government is the plaintiff.

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 1.2
From: Cathy Baxter


Thanks Paul

Can the trust be sued?

I have seen Renton's book - will pick it up.

Cathy
 
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Reply: 1.2.1
From: Paul Zagoridis


The trust can be sued (actually the trustee gets sued in its capacity as trustee for the trust).

For example if your trust owns 3 IP's and is sued (e.g. as landlord for breach of duty of care). Then all the assets of the trust are at risk. That is why the normal recommendation is to limit the number of IP's in any one trust.

Hope this helps

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 1.2.1.1
From: David U


Hi Paul

I thought one of the main purposes of setting up a trust was for asset protection. If a trust can be sued then where is the real protection?

Thanks

David U
 
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Reply: 1.2.1.1.1
From: Sergey Golovin


Protection is in - Play by the rules...

Serge.
 
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Reply: 1.2.1.1.1.1
From: Paul Zagoridis


Yes Serge and David

You don't carry on a trading enterprise in your asset holding entity (Trust1). Trust1 does not own your car or any depreciating assets, nothing that can get into trouble.

Think of it as splitting yourself into a family. One adult child can't be sued for the activities of another sibling. So you put the risky stuff in one or more trusts and the wealth creation stuff into another trust.

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 1.2.1.1.1.1.1
From: Dale Gatherum-Goss


Hi

Actually, since it is the trustee that is sued, the Appointor of the trust merely asks the trustee to resign and a new one is appointed. Therefore, the old trustee faces a law suit when it has nothing but $2 worth of shares. The new trustee takes over the assets.

Hence the assets remain protected and free from attack.

Anyone remember a fellow by the name of Alan Bond? Hmmmmm . . .

I hope that this helps.

Dale
 
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Reply: 1.2.1.1.2
From: Michael G


Hi Dave,

The protection lies in the fact that if YOU are sued, then the claims can only be against the assets in your name, not the properties or stocks held in trust. Of course if someone trips up in the property then of course they can only claim against what the trust holds, thereby protecting assets in YOUR name.

As Paul said the idea is not to have "all your eggs in one basket", and each trust is a basket of assets.

I've only heard this, but I heard that the Kennedys placed their pet in a trust. What happened was the pet bit/scratched someone, that person then took the Kennedys to court to claim a huge winfall (ie compensation for damages), after spending $$$ on court cases, the plantiff "won" everything entitled to them that was held in the trust :) ie the pet.

That's taking it to the extreme, but hey what ever you're comfortable with :)

Michael G.
 
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Reply: 1.2.1.1.1.1.1.1
From: Paul Zagoridis


Thanks for that Dale

So if somebody makes a public liability claim for slipping on the driveway, the trustee is at risk? Even better!

I thought that the house was at risk if it was the house at fault? That never made sense to me as the trust is not a legal person. But landlords are increasingly liable for their property.

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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