hybrid trusts & being sued

[john doe]

Hi all,

Just wondering what happens if you hold units in a hybrid trust and are then successfully sued? The creditors have rights to the units you hold in the hybrid trust, right? So does that mean that whatever benefits you derived from those units now flow on to the creditor? Or can the trust do something so that the creditors still in effect get nothing?

The underlying assets of the hybrid trust are still protected right, as they were never in your name?

Cheers

John

 

[NickM]

John

If you hold income units in a Hybrid trust that is your asset. I generally issue them to my clients for $1 each and they take a loan to purchase those units.

If they get sued, the creditor could sue for the units which would entitle them to an income stream only. However these units are secured by a loan from the financier. so the units get cashed and the bank gets their money. The assets of the trust are protected.

Regards
Nick

 

[john doe]

Hi Nick,

Thanks for your reply. Well explained.

The only part I don't get is this:

"...so the units get cashed and the bank gets their money."

If someone takes out a loan to purchase units in the trust, the trust then takes all of that money and buys assets with it. So when the financier who secures the loan wants you to cash in the units so they can get their money back, the money is now effectively "locked" within the assets that the trust bought.

So does that mean, for the financier to get their money back, the trust needs to sell some assets in order to redeem the units?

Thanks

John

PS I looked up your profile and see that you're a CA practising in Sydney. I'm looking for a good accountant in Sydney. Can I email you to discuss this further, or do you only handle corporate clients?

 

[NickM]

John

Not quite. i guess "the bank gets the money " is not the best term. The objective would be to reduce the assets of the unit holder and it can be done via the redemption. i can explain further if you wish.

I do deal with clients that have trust structures.
Feel free to email me if you wish

regards
Nick

 

[john doe]

Hi Nick,


"The objective would be to reduce the assets of the unit holder and it can be done via the redemption. i can explain further if you wish. "

I'd be grateful if you could explain further. This may sound naive, but I'm wondering if you can reduce the assets of the unit holder without the trust having to effectively pay the unit holder anything?

Cheers

John

 

[XBenX]

Its good to share the info on the public forum, that way all users get the benefit

 

[NickM]

John

In the balance sheet of the trust it would then be shown as a liability to the unit holder.
ie money owed. then if possible; that liability would need to be assigned to a spouse. however if legal action is pending the transaction may be open to attack

Nick

 

[john doe]

asset protection qu

Hi all,

I'm just wondering, short of establishing a family trust, is putting assets in the name of a spouse a good asset protection strategy? My wife is going to be a doctor, so we won't put anything in her name. But as for me, as long as I never have any interests in a company or my own business, and I never go guarantor for my wife, and I spend the rest of my working life working for a large company who covers me for all liability issues, then is it an OK asset protection strategy to put assets in my name?

From what I've learned so far, I think so. But I'd be interest if anyone could point out anything else to the contrary?

Cheers

John

 

[Terry_w]

I'm just wondering, short of establishing a family trust, is putting assets in the name of a spouse a good asset protection strategy?

Good strategy for you but maybe not for the wife. What if you sell the property without her knowledge? Mortgage it? Die and your will is challenged? Family provision claim?

But it may be generally good asset protection from creditors of your wife if she were to go bankrupt. But the strength of this will depend on where the money come from to buy the house, who paid the loan etc. It could be argued that you are trustee for your wife.