2. Trust Splitting as an Asset Protection strategy
How much wealth needs to be in my Family Trust to warrant splitting the trust for asset protection?
Steady on big fella. Let’s get back to basics. These are the 5 truisms of asset protection in a family trust:
(1) One asset in a family trust that goes bad will take out all the other assets in the Family Trust.
(2) For asset protection, Assets are divided in 3 classes:
High Risk (trading business, e.g. accounting practice, financial planning practice, law firm, real estate agency and newsagency).
Medium Risk (all types of real estate – if someone is injured on the property then the Trustee is often personally liable, even though the Trustee may have no beneficial interest in the real estate).
Low Risk (Shares and Managed Funds)
(3) Only a mad dog would keep high-risk assets (a business) with low risk assets (shares) in the same Family Trust.
(4) You can have as many Family Trusts as you want. They cost $275 from
www.lawcentral.com.au. However, you do suffer greater accounting fees each year.
(5) You don’t want to have too much wealth in a Family Trust, as the more wealth in the Trust, the better the target for would be creditors.
Trust Splitting
The solution we have come up with for splitting a trust is great. It has no CGT and stamp duty implications, and on the 3 occasions I have split a trust, there has been the following benefits:
asset protection, i.e. my first client wanted to separate his valuable business premises from his other business assets that were all sitting in the same trust
land tax minimisation, i.e. my second client had 2 properties in their family trust; because of aggregation rules for land tax (ie. sliding scale tax rates), the land tax bill was $12,000. By splitting the trust so that there were 2 properties in 2 trusts, the land tax reduced to $4,400. I confirmed this with Land Tax before the process and the reassessment went through afterwards with no problem. CAUTION there is a land tax anti-avoidance rule, so don't do it just to avoid land tax (or at least don't say so in any written correspondence), it is for many reasons
estate planning, i.e. my most recent client had a few properties in the same trust, but when doing his Will, he wanted to have different levels of control by different children for each property. The way we solved the problem was splitting the trust so that different properties were in different sub-trusts controlled by each kid
Based on our successful experience with the splitting of trusts, I am happy to fix quote the work for $2,000. This includes meeting with the lawyer, and everything from creating the Deed of Variation, to the liaising with the stamps office.
To start the process, please call ring me on 08 9325 8033. We can open a file and start the ball rolling.
