If the Appointor gets sued, can they come after Trust assets?

[msapples]

A friend of mine got sued recently for his business activities, and ended up spending $30,000 in legal fees to defend himself. He could have won without a lawyer but he didn't want to put his property at risk (as it's in his name).

So from his experience, I'm now obsessed with Asset Protecting my properties and shares.

So I'm thinking of this Trust structure:
Appointors: Myself
Trustee: Myself Investments Pty Ltd (which I am the sole company director)
Asset: My investment property
Beneficiaries: Various people


My question
1. If I get sued for personal reasons (not bankrupt or bad credit reasons), can they go after my Trust assets?

How effective is the Trust at "asset protection" against my personal liabilities if I'm the sole Appointor?

 

[Mr. Fabulous]

Spending 30 seconds on Google would have gotten you the answer you were looking for.

Do a search for 'Appointor sued' on Google. You will find what you are looking for. I *could* have posted the answer for you, but I try to encourage people to do their own homework rather than doing it for them. Kinda like when we were young, my brother would ask me how to spell a particular word and I would tell him 'Look in the dictionary'.

Too many people are prepared to do the work for people who can't be bothered doing it themselves. All that does is breed a culture of laziness where posters clog up forums with useless 'Give me the answer because I can't be bothered looking for it myself' type threads rather than spending a little bit of time doing some investigation. Here's an alternative - find the answer, then come and share it here for everyone else.

The definition of irony: Taking longer to reply to this post than it took to find the answer.

 

[wylie]

I didn't think the question needed such a response.

Perhaps it is because I have some trust questions of my own, and I know that when I google, I get thousands of answers. Instead of wading through the first dozen or so, particularly when the whole "trust" issue uses terms that I don't fully understand, isn't it easier to ask the question here and hopefully get a helpful answer, and not a "you are lazy" rebuke?

The way I see it, half the trouble (in my opinion) is finding the right question that I need to ask. Very often the answers put up on this forum help me to formulate exactly what the question needs to be, more like a "think tank" or "sounding board", if you like.

I need to ask my questions of a solicitor, but I would rather refine the question here than use our $400 per hour (or whatever he charges) solicitor to help me to refine just exactly what my "real" question needs to be.

I hope that makes sense.

 

[The Y-man]

Appointors: Myself
Trustee: Myself Investments Pty Ltd (which I am the sole company director)
Asset: My investment property
Beneficiaries: Various people


My question
1. If I get sued for personal reasons (not bankrupt or bad credit reasons), can they go after my Trust assets?

How effective is the Trust at "asset protection" against my personal liabilities if I'm the sole Appointor?

As I understand it, having the the same person as appointer and director of the trustee company can leave the door open to outsiders.

i.e. they take control of appointor, then apoint themsolves as trustee.

The reason there are many hits when you google this (again my understanding) is that there are some legislative changes (happening or gone through?).

Cheers,

The Y-man

 

[msapples]

To Mark Laszczuk:

I actually have spent the past 2 weeks Googling and looking for exactly what you're suggesting. That's how I found this forum.

I know a lot more about Trust now than I ever did. However, I still have questions which I haven't got clarified, and I thought why not post them here. Someone else may be looking for the exact same thing as me - so why not knowledge share?

Actually, I do a search before asking any question here in case my question has already been answered. I have also been happy to share information with others' questions if I know it.

So sorry if this "clogs" up the forum for you, but I'd suggest you don't post in my thread if you don't have anything useful to say to my question and clog it up more. There is nothing wrong with knowledge sharing, as we all help each other here. If your attitude is "go and pay a lawyer/accountant $$$$$" for even general questions, then what's the point of having a forum at all?

Unlike you, many of us starting out don't have the spare money lying around or the necessary contacts to get "professional advice" as easily.


To Wylie:
Thanks for your understanding.

 

[Ace in the Hole]

I'd be interested in the answer too and have been thinking about this lately.

Thanks for starting this thread and bringing it to attention.
I would prefer a discussion forum to have more, rather than less posts.
I don't consider this post to be clogging the forum with useless discussion.

Or, maybe this should have been posted in the Coffee Lounge?

 

[Mr. Fabulous]

To msapples, wylie and Ace In The Hole.

Do a search for 'Appointor sued' on Google. You will find what you are looking for.

Seriously guys, it's right there for the picking. The second and third search results will give you the answer you are looking for.

 

[Ace in the Hole]

Thanks Mark.

It's just that sometimes we can all be busy and have so many things to look into.
Sometimes when a topic just pops up from someone elses experience, it can be more convenient to do a quick scan of any relevant new posts which have been made.

Then if we don't get all the information we need, we can look into it deeper by searching this forum, or google, which often leads back to this forum, because it is so great.

Thanks

 

[msapples]

Hi guys - I just found this - might be useful to you.

http://ntaacorporate.com.au/products/faqs/5

Go to the Question:
"If an appointor in a discretionary trust gets sued, is the trust in danger?"

I guess the moral of the story is to have at least 2 appointors (Yourself and someone you trust: e.g. spouse, parent, sibling, or even your accountant)... Just as long as your accountant doesn't go sour on you if you choose to stop getting them to do your statements! haha

But this is similar to the LLC in United States, where it's safer to have 2 directors. It makes the trust safer.

 

[bene313]

I guess the moral of the story is to have at least 2 appointors (Yourself and someone you trust: e.g. spouse, parent, sibling, or even your accountant)

Need to be careful with that. The appointor(s) is the most important and powerful person(s) for the discretionary trust.

 

[Piston Broke]

I guess the moral of the story is to have at least 2 appointors (Yourself and someone you trust: e.g. spouse, parent, sibling, or even your accountant)... Just as long as your accountant doesn't go sour on you if you choose to stop getting them to do your statements! haha

Not it is'nt if you read carefully.
Whilst "appointorship" may be viewed as property it's separate to property held in trust.

 

[tubs]

I have heard this from a number of sources, and it still remains on Chris Batten's website:
"The power of appointment in relation to a trust is not property and therefore does not pass to a trustee in bankruptcy. "

So according to this, no. If an appointer were sued their power of appointment would not be passed to a creditor who could take over the trust.

 

[Terryw]

A friend of mine got sued recently for his business activities, and ended up spending $30,000 in legal fees to defend himself. He could have won without a lawyer but he didn't want to put his property at risk (as it's in his name).

So from his experience, I'm now obsessed with Asset Protecting my properties and shares.

So I'm thinking of this Trust structure:
Appointors: Myself
Trustee: Myself Investments Pty Ltd (which I am the sole company director)
Asset: My investment property
Beneficiaries: Various people


My question
1. If I get sued for personal reasons (not bankrupt or bad credit reasons), can they go after my Trust assets?

How effective is the Trust at "asset protection" against my personal liabilities if I'm the sole Appointor?

If you get sued and have a judgment entered against yourself then the judgment creditor can apply to the courts to seize your property. They can't go after third party assets.

But the next step is for them to bankrupt you. Then the trustee in bankruptcy steps in your shoes and takes over your financial affairs. He/she will sell property that you own to satisfy your creditors. If you personal assets are no enough he will start look at past transactions, such as transfers to related parties, transfers under value etc. He will also want to look into any interests you have in any trusts.

The role of appointor is not considered 'property' under the bankruptcy act. There was a case, Wily v Burton (Re Burton, Wily v Burton (1994) 126 ALR 557) which confirmed this. Para 14:

Thus, as the interests of the beneficiaries must be taken into account, and the power exercised in their interest, the power which Mr Burton holds as Appointor is not "property" which vests in his trustee in bankruptcy nor a power "as might have been exercised by the bankrupt for his own benefit."

http://www.austlii.edu.au/au/cases/cth/FCA/1994/1146.html

 

[Terryw]

I should point out that there are more recent cases which have suggested one person controlling the trust could lead to courts concluding that they are the alter ego of the trust. One of these cases is "Richstar" where the individual who was director of trustee and appointor of the trust was deemded to effectively control the trust and could benefit himself if he chose to as controller of the trustee.

However, this involved the corporations act and an ASIC prosecution - not a banruptcy. It won't apply to the average person.

But this has lead to people suggesting it is still a good idea if there is not one appointor but 2 or 3, and maybe even including an outsider such as an accountant or solicitor - who won't be a beneficiary of the trust. This may be a good idea to add strenght, but it may be overkill too. There is a 2008 case, from memory, involving a Dr Smith in the NSWSC where the Richstar argument was raised and rejected - she was the sole director, appointor and only person to ever benefit from the trust as beneficiary - but still the trust assets were not considered her own.

If you do appoint outsiders as appointors make sure you have considered death planning as if you were to die the remaining appointor(s) could take control of the trust and indirectly benefit themselves at the expense of your family.