Re-using a unit trust

[tony100]

I was under the impression that once you set up a unit trust (for small development projects) you would finish the project then use the same trust for the next project. However, someone recently told me that it is feasible to use the unit trust for one project only then close it off at the end of the project and open a new trust. He said the benefits of doing it this way are as follows:

1. You can name the trust to suit the particular property (i.e. 5 Spencer St unit trust). If you have multiple projects going this could help avoid confusion.

2. It is much "cleaner" as a new trust is used for each project

3. Done correctly, it should only cost around $400 to set up each new unit trust

Does anyone have any comments on this suggestion?

Thank you.

 

[Splinter Wood]

Hi Tony,

I think one of the main reasons you may have been told to 'Wind-up' your trust at project completion is to remove any connection between the finished project and your next/new project.

All part of the Asset protection idea which is proabably why you are using a trust right ? If something happens in your finished project that attracts legal attack on you (your Trust or Trustee Co), then if your trust is hooked into some Goldmine somewhere, you may be exposing your goodies.

Not 100% sure, but I thik thyere is some validity in this. May need Ralf or Dale GG input to confirm.

Regds
SW

 

[tony100]

Hi SW,

Many thanks for the reply.

The scenario you suggested hadn’t even occurred to me. I set-up the trust mainly for tax reasons and had not considered the potential legal downsides to reusing it.

I will discuss with my solicitor.

Thanks again, I had given up hope of getting a reply on that post.

Tony

 

[Mry]

Yep, thats why.

You run the risk of being liable for the last jobs undertaken so it is a risk from an asset protection perspective. For example you build a house, sell it, someone gets hurt in the house due to shoddy workmanship and they then sue the Unit Trust which has just gathered some land and funds to start a new project and wipes the lot out.

Paying for a new entity is a way of negating that risk.

This is also a reason why there are no second hand markets for companies. You could buy a company off a friend to run a dental surgery and be liable to shoddy concreting jobs he did before you took over.