Hello just want to raise issue of Plan B and C?

[atti]

how many people here actually have well protected assets in trusts and companies i am just wondering.

or even taking out multiple spiderwebs kind of second loans to protect their equities that they spent all their lives investing for ?

does setting up trusts companies for asset protection protects you from legal proceedings of example.

You play golf and accidental smack a ball and hit someone in the face which cost them 1 milliondollars to repair and courts found you guilty of negligence.

drink driving on public road causing death or bodily harm or even not drink driving and courts found you guilty say 80% at fault of negligence and the motor accident commision ie(third party rego insurer) comes after you for large sums.

another scenario would be if this does happen can they simply just take all assets you own in your name by creditors even if its properties with mortgages ?

how will trust protect us from these circumstances should bad luck arises ?? lol what would you do if it happens , just sell up and run to switzerland with cash is logical choice but obviously thats not going to work.

or gifting it all to family members or charity ?

just been noticing it is quiet prominent in most real estate investing books that asset protection is a must, but do an average investor say 1-3 or even 5 properties networth under 2 million even need to do anything ?

 

[Aaron_C]

If you dictate your life around the 0.00001% chance that you hit someone with a golf ball and get sued for $1m then you'll never do anything. Let's put everything in perspective.

 

[atti]

i can see where you coming from, the issue with above average joe blow still wouldnt know even thought about it. i know we all so positive but you gotta plan when you start having abit of networth right ? i know chances are like a lotto winnings but it does happen everyday out there.

from observation eg like kfc case caused girl going paraplegic. i dont see kfc been affected financially as a whole, but what happens to that poor franchise owner of that particular kfc did the guy have strategy in place to protect or do a runner to switzh alps or now bankrupted lining up at centerlink for a job?

http://www.franchise.net.au/news/kfc-to-fight-salmonella-judgement-and-8m-damages

 

[Aaron_C]

Yes structuring is fine blah blah blah (I do it myself) but the main priority should always be to make money first. I see simple PAYG employees with 5 trusts/companies for some small residential loans and I just shake my head. There just comes a point when you need it - but there is also a long time prior when you don't compared to the costs involved in both setting up and running them. They are best used when you are doing a development, a joint venture (where you need structures for business purposes), running a business (where professional negligence is a real and present danger) or when you are buying commercial properties. Other than that, I think they are usually overkill.

 

[RPI]

I have seen multiple situations where clients have gone personally bankrupt yet assets in trusts that they were beneficiaries of are left alone. All of the circumstances I have seen to date involved the person having their own business.

There is one large case I am involved in at the moment where only one of the parties I represent has trusts and if it all goes bad they will be the only one of 60 odd that have ring fenced their own home.

Chances of something like you said happening are small though. But there may be other common issues where your financial situation turns badly for some reason and you can't afford to hold properties, if you use trusts you may be able to isolate the losses.

In some circumstances land tax alone can justify the running costs of setting up a trust. The financial flexibility of a DT in QLD is another good reason.

However, if you need to negatively gear the properties and you are payg then discretionary trusts may not be for you.

I think of them like insurance, the chances of your house burning down is small, but you still shell out for building insurance. And building insurance will most likely cost you a lot more than running a trust.

In QLD I would only put one Brisbane property in each trust for land tax alone. Once you hit $350,000 UCV you are up for $1450 a year plus 1.7 for each dollar more.

In your own name you top out at $600,000 and then you are up for $500 plus 1c for each dollar over up to $1m and then it gets worse.

That is why you need to be fully informed and weigh up what's best for you.

I am a huge advocate of trusts, others are not.

 

[jim1964]

I think they are usually overkill.

Agreed,the average Joe Punter doesn't need a trust set up.This has for years been coming from accountants etc to put the fear of God into the equasion and setting up Trusts is not cheap.Its not just the setting up which is expensive,yearly reporting is quite costly as well.Last year mine was over 2k to lodge the return.

 

[Terry_w]

Trusts do not prevent legal proceedings. If you hit someone in the head with a golf ball you are still going to be sued if you have an interest in a trust or not. But properly structured you may go bankrupt with the trust assets being affected.

Asset protection is just one benefit, the others being
2. Estate Planning
3. Taxation.

I can't really see why someone who is an investor wouldn't have a trust in there somewhere>

 

[devank]

All of the circumstances I have seen to date involved the person having their own business.

Then why not simply place the business under a trust and isolate that?

 

[Terry_w]

Then why not simply place the business under a trust and isolate that?

Personal Guarantees! Even if you have a business set up in a company the directors may be required to give personal guarantees for things such as loans, leases, rent, advertising accounts, trade accounts etc etc.

I have a client whose company lease commercial premises for $200k pa and he had to provide a personal guarantee. Business failed within months and he has guaranteed 3 years rent! Luckily he planned ahead and owns no assets.

 

[Aaron_C]

I have seen multiple situations where clients have gone personally bankrupt yet assets in trusts that they were beneficiaries of are left alone. All of the circumstances I have seen to date involved the person having their own business.

Exactly....which is the distinguishing factor for most investors who are just PAYG (and likely to remain so).

 

[Terry_w]

Exactly....which is the distinguishing factor for most investors who are just PAYG (and likely to remain so).

The trouble is you don't know what course your life will take. Most self employed probably start out as PAYG. I did.

 

[RPI]

Then why not simply place the business under a trust and isolate that?

Because the individual director of the trustee will have to give guarantees to banks and landlords and sometimes other creditors, also the ATO has some lovely director penalty provisions. While the trust helps protect the individual from other creditors if it goes bad it tends to be total, so the trust can't pay the creditors who then go after the person who provided the guarantee and they go bankrupt and lose all the assets in their own name.