trust & investor taken to the cleaner - fact or myth ?

[oasis1frog]

Many accountants/solicitors advocate various trusts because it will generate very good & steady business for them. Before I set up my HDT my tax return bill was couple of hundred bucks (average for most taxpayers), now it's two and half grand. One of the 2 main reasons for using trusts is asset protection (as advised by accountants/solicitors). Has any one on SS heard any story about investor being sued by the tenant and lost everything (in case the insurance doesn't pay up), or is it urban myth ?

 

[WallyB]

I'm unaware of any investors who've gone through this personally but I ran this through with my solicitor a few years back and he said the odds roughly one in 100,000 of me being successfully sued.

However I've implemented:

- 5 yrly building reports on our IP's (hired a handyman to fix issues)
- electrical safety switches and hard wired smokies
- glass audits (one off)
- prompt (ish) fixing of issues from managing agents reports

good luck

 

[oasis1frog]

I'm unaware of any investors who've gone through this personally but I ran this through with my solicitor a few years back and he said the odds roughly one in 100,000 of me being successfully sued.

thanks WallyB, so if there are 1.4 million property investors in oz, 14 investors will be sued successfully ? I think I'll have better odds winning 1st prize in powerball.

 

[Raddles]

Hi there
we had friends who rented their property whilst they were overseas.
The tenant fell down the stairs and did sue them.
Their insurance company ran the matter and did settle it, even though our friends were adamant there was nothing wrong with the stairs and it had more to do with the tenant putting on the pounds and not watching where they put their feet.

It does happen - and if the owners are not protected properly either with insurance or structures - they could be taken to the cleaners.
As a legal costs consultant involved with the disputes over the legal costs at the end of the day - I do see how matters are run. And if after a property search it is evident there will be no money from a party at the end of the day, the solicitor will pursue the money and may sue someone quite unrelated to the matter. The classic case is one where a young child was electrocuted when walking on wet grass. The electrical contractor called in to repair the place had not done his work properly - was negligent - as the earthing had not been done properly. The contractor was sued as was the landlord. The contractor had no money but the landlord did - and that is where the litigation occurred.
thanks

 

[Mr. Fabulous]

Some joker decided to put his FINGER in a LIGHT SOCKET down his local and got the injury of a lifetime. Which was a good thing. Problem is he sued the pub AND WON.

We are heading straight for the American Dream here people - where everyone sues everyone else and no one takes responsibility for their actions.

Also, trusts aren't just about asset protection.

Mark
​

 

[letiha]

I think the important thing is important, aslong as you have appropriate insurance you are fine.

I have only come across one claim during my work where there was no insurance, the owner claimed they renewed the policy, but infact rang upand renewed the car insurance which was also due.

In the end the insurer and the home owner both chipped in and paid some. However the matter settled for much less than if there was proper insurance because our client knew that if we took it to court it would be likely that the court would find there was no insurance and the home owners would not have the means to pay the judgement.

 

[Mr. Fabulous]

I think the important thing is important,

I agree.

Mark

 

[oasis1frog]

yes I guess we can't be too cautious nowadays when everyone is suing everybody else !

 

[natmarie73]

Some joker decided to put his FINGER in a LIGHT SOCKET down his local and got the injury of a lifetime. Which was a good thing. Problem is he sued the pub AND WON.

We are heading straight for the American Dream here people - where everyone sues everyone else and no one takes responsibility for their actions.

Also, trusts aren't just about asset protection.

Mark
​

Oh yeah I heard about that - what a joke. I reckon if the club appealed in the high court they probably would win, but it would cost them more than $30,000 to do so.

In order to be successfully sued the plaintiff has to prove that you have been negligent, and of course their lawyers must be able to find enough money to make it worthwhile. If you are scared of being sued, then make sure you do everything reasonable not to be negligent in any way and you should be OK. And make sure you have good insurance.

Raddles, what is the name of the electrocution case you mentioned - I would like to read it to see how on earth the landlord could possibly have been negligent.

 

[Raddles]

http://law.ato.gov.au/atolaw/view.htm?DocID=JUD/188CLR313/00006

If you follow the above link you can read the relevant case of Northern Sandblasting Pty Ltd v. Harris (by her next friend Harris) (1997) 188 CLR 313 . I believe it has more to do with public policy to allow compensation to be paid as I don't believe the landlord did anything wrong.
thanks

 

[THEHEATH]

What about the protection it offers from other people oasis? Such as future partners etc. Also, wouldn't the 2.5k be tax deductible?

 

[Firsthomelooker]

I've implemented:

- 5 yrly building reports on our IP's (hired a handyman to fix issues)
- electrical safety switches and hard wired smokies
- glass audits (one off)
- prompt (ish) fixing of issues from managing agents reports

good luck

I think WallyB is on the right track here. I came across a couple of these landlord and tenant injury cases whilst undertaking another research task last week (ie, I havn't researched this area properly, merely come across some select cases) and despite the outcome the judges in all seem to agree that the residential landlord does not have an absolute liability for any injury to the tenant caused by the house being defective, but the landlord does have an obligation to inspect premises for defects prior to a tenant taking possession.

The part they don't agree on comes down to what sort of inspection is reasonable. The case Raddles pointed out, Northern Sandblasting, was a close case. The majority of four (there are seven justices total) said that the landlord should have had the electrical system inspected prior to allowing the tenants to take possession and that the landlord was liable for the electricians faulty work. The minority of three said this was not a reasonable expectation. If your interested in the exact reasons you can read the entire judgement on austlii.

Another case I came across, Gration v C Gillan Investments a 2005 case in the Qld Supreme Court of Appeal (ie, the highest QLD court) found the landlord liable to a tenant who fell through rotten stairs on a Queenslander because a simple inspection by a home handyman would have found them to be defective. Again this was a close case, there are three justices total and this decision had a majority of two.

 

[oasis1frog]

What about the protection it offers from other people oasis? Such as future partners etc. Also, wouldn't the 2.5k be tax deductible?

I think the issue is more with whether the trust actually offers asset protection. I was told by my accountant recently that HDT no longer offers asset protection. Kind of like you pay insurance policy premium for 20 years then when the time come the insurance company doesn't pay up.