Forums / Getting Technical / Legal & Accounting / Sue Trust or trustee

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  • Profile photo of SebastianSebastian
    Member
    @sebastian
    Join Date: 2003
    Post Count: 55

    Hi All,

    I’ve recently been confused about a Trust and Trustee setup and which entity can be sued.

    Now, my understanding has been in the past that if a property is owned by a trust and something happens within the property which leads to litigation then the Trustee is sued (hence the use of corporate trustees) because a trust is not an entity as such, and more so a holder of assets…

    Now I have been told by an asset protection consultant that a trust can be sued for the assets within that trust… which goes against what I understood to be the case…

    Can someone clarify this for me… I’m sure there is a simple explaination that I am somehow missing here..

    Thanks

    Sebastian

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733

    Cata and Coasty Mike are the resident Asset protection Specialists

    “Money is a currency, like electricity and it requires momentum to make it Effective”
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    Profile photo of coastymikecoastymike
    Participant
    @coastymike
    Join Date: 2005
    Post Count: 125

    The consultant is incorrect.

    One advantage of a discretionary trust owning assets, or conducting a business, is that no one beneficiary has any claim to the assets of the trust. It is the trustee of the trust that is sued not the trust itself.

    There are a lot of these so called “asset protection specialists” running around town predicting that the end of the world is nigh lest you establish a discretionary trust. A lot of these consultants have qualifications in other areas such as optometry, mortgage broking, etc and have no formal qualifications in law, accounting, economics, business administration or other commerce related discipline. They go to a few courses, get given a bunch of manuals to rote learn and then sell a few products. Many of them have no understanding of the principles behind the concepts and end up providing poor advice. I think asset protection consultants have almost become the new property spruiker for the naughties.

    I would ask your asset protection specialist what tertiary qualifications they have in either law or accounting or business admin. I wouldnt be surprised if they have a major in a totally different discipline.

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733

    I agree with a lot of what you’ve said Coasty..a local APS I spoke to, when asked, informed me she is neither an accountant nor a solicitor..

    Would you then say she is a sales rep?

    I’m glad to read this post of yours, as I hold you in pretty high regard when it comes to these issues and can only say its good to see that you realise what is happening in your industry as well.

    REDWING

    “Money is a currency, like electricity and it requires momentum to make it Effective”
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    Profile photo of coastymikecoastymike
    Participant
    @coastymike
    Join Date: 2005
    Post Count: 125

    Redwing,

    What amazes me is that some people are making recommendations to people to quickly setup a trust and move their one IP to the trust in case they get sued.

    When you talk to these people they are working in an extremely low risk industry (usually an employee for a major corporate), have one investment property, basically have no equity and are worth under $1M. I mean its crazy to transfer an existing IP into a trust and incur the stamp duty and possible CGT if your chance of being sued is negligble.

    But then they are told that you could be out mowing the lawn and a rock hits someone in the eye and they sue you for $20M. What then. Well if you have a net asset base of $200K then the chances of them getting $20M are pretty slim. So your $200K is a risk. Sure but life is about assessing risk and the costs of mitigating that risk. If you insured against everything single risk in life then your insurances would be astronomical.

    I actually had a client tell me once that his insurance policy against anyone making a claim on his assets was a russian associate who would ensure that the claimant wouldnt have a tongue or fingers so speaking or writing down the claim would be impossible. I conceded that in that case his asset protection was probably pretty good.

    Seriously its about risk management, risk mitigation and assesing the costs vs benefits. Unfortunately fear is a powerful tool and has been used many times to sell many types of products.

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    hi coastymike
    I would be interested in you shooting me a pm email as I setup a company and a trust for each of my developments and agree that putting property into trusts after setup isn’t alot of good but I would like to make sure that we have set them up correct from the start.

    here to help

    Profile photo of munjymunjy
    Member
    @munjy
    Join Date: 2005
    Post Count: 129
    Originally posted by coastymike:

    I would ask your asset protection specialist what tertiary qualifications they have in either law or accounting or business admin.

    Even though it is clearly not a pre-requisite to become an asset protection specialist, what kind of benefits do you think they bring to the job? I only ask because a lot of people say to steer clear of solicitors or accountants for asset protection advice.

    As for a russian associate, they seem v. handy. Are they cost-effective? [ohno]

    Munjy

    Profile photo of coastymikecoastymike
    Participant
    @coastymike
    Join Date: 2005
    Post Count: 125

    Given that one requires a basic understanding of law to interpret the application of rulings applied by the courts to determine the effectiveness of asset protection strategies then I find it rather ironic that one would advise against consulting with a lawyer re asset protection strategies. Who do they suggest you see ? a cleaner or pool attendant ?

    Most of the documentation required to formulate an asset protection strategy will require the services of a lawyer and to become a lawyer one msut have completed relevant tertiary qualifications in law. I can understand their concerns with accountants as many accountants are lacking an understanding of asset protection strategies.

    I think the Russian just wants a decent vodka.

    So the benefit. Well its sort of essential.

    Profile photo of catacata
    Participant
    @cata
    Join Date: 2005
    Post Count: 559

    I have had many negative comments from people that have been told that they need Asset Protection when they clearly do not. Being one of these “Asset Protection Specialists” I feel that some others are possibly in it for the wrong reasons, which makes me feel as if I am being draged down also.

    Having said that, I believe that the trust deeds we use are some of the best around. We also have a large group of solicitors and barristers that I turn to for all my legal advice.

    The reason that I decided turn to Asset Protection is from a personal experience that almost cost me in excess of six figures. Not a nice position for anyone especially for a first time investor. The more I looked, the more I realised that who I was asking for advice didn’t seem to know much more than me. Now it seems that I have some accountants calling me for an “Opinion”.

    I personally am in it to help people that are not sure if they need help or not. I inform them of what is available, give them some options and let them decide for themselves. As for others, I can not control what they say or do and am in no position to do so.

    All I can say is to do your own “Due Diligence” and decide for yourself whether it is right for you. I have had no bad reports about myself and would like some feedback, good or bad.

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of SebastianSebastian
    Member
    @sebastian
    Join Date: 2003
    Post Count: 55

    Coastymike & Cata,

    Thanks very much for your posts, this reafirms my original understanding and also means I am not going crazy.

    Now, this APS also suggests that only 2 – 4 properties be held in each trust (in order to limit exposure) Now if the $2 corp trustee is the only entity that can be sued then it should not matter how much property you have in a single trust, it cannot be touched?!

    Cata,

    I would be interested in showing you what I have and discussing with you what you can offer me in term of structure. I will email you.

    Thanks

    Sebastian

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733
    Originally posted by Cata:

    All I can say is to do your own “Due Diligence” and decide for yourself whether it is right for you. I have had no bad reports about myself and would like some feedback, good or bad.

    CATA
    Asset Protection Specialist
    [email protected]

    My feedback in my discussions and PM’s with you Cata has ‘all’ been positive [thumbsupanim]thanks for some of the feedback you’ve given me on various questions..

    REDWING

    “Money is a currency, like electricity and it requires momentum to make it Effective”
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    Profile photo of 30Ch30Ch
    Participant
    @30ch
    Join Date: 2005
    Post Count: 7

    The trustee is the owner – its/his/her name is on the title deed of the property. The trustee is the one who is sued. If the person suing wins the case, it is the trustee who has to pay… if the debt is incurred by the trustee in his role as a trustee (which in the situation you mentioned would be the case) then the trustee can draw on the assets of the trust to pay the debt.
    That way, anyone claiming can always get their hands on the assets of a trust.
    on the other hand if the person who happens to be the trustee incurs a debt which had nothing to do with the trust, then the person claiming cannot get into the assest of the trust

    Profile photo of catacata
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    @cata
    Join Date: 2005
    Post Count: 559
    Originally posted by 30Ch:

    The trustee is the owner

    The trustee is the controler, not the owner. For all legal and tax purposes the trust owns the asset but is controled by the trustee. The trustee has to pay as it is in control(liable) for what happens in the trust.

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of 30Ch30Ch
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    @30ch
    Join Date: 2005
    Post Count: 7

    No, its not correct to say that for all legal purposes the trust is the owner. The trustee is the legal owner – that is why, for instance, the name of the trustee appears on the title deed, and why if you are suing a trust you sue the trustee

    Profile photo of catacata
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    @cata
    Join Date: 2005
    Post Count: 559

    If the trustee is the legal owner eg. a company, then why do we set up a trust at all as the trust would be unnecessary? And why does the trustee not pay expenses or recieve income unless it is a beneficary(not something I would do)?

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of WASPWASP
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    @wasp
    Join Date: 2005
    Post Count: 51
    Originally posted by 30Ch:

    No, its not correct to say that for all legal purposes the trust is the owner. The trustee is the legal owner – that is why, for instance, the name of the trustee appears on the title deed, and why if you are suing a trust you sue the trustee

    I thought as Cata explained the Trustee just controls the trust..however, the apointer can sack the trustee and replace them at any time..that being the case, how can the trustee be the owner 30Ch?

    Wasp
    **************************************************

    Its not what you earn but what you do with what you earn

    Profile photo of 30Ch30Ch
    Participant
    @30ch
    Join Date: 2005
    Post Count: 7

    I’ll take you through it, slowly, one more time. The Trustee is the legal owner, fullstop. You need to understand the difference between a legal owner and a beneficial owner. Any Asset potection specialist ought to know this. Just type in “Trustee legal owner” in a Google serch and you will see this mentioned about 80,000 times!!!
    Also, the Trustee is the controller of the Trust as long as the Appointor allows it (in a discretionary trust, that is)..so isn’t the controller really the appointor and not the trustee?
    It is a trustee not a beneficairy who pays the bills etc.

    Profile photo of Matt RMatt R
    Member
    @matt-r
    Join Date: 2005
    Post Count: 38

    Sorry, bare with me. still only 4th semester law.
    If the trustee is sacked by the appointer, does that mean the properties in the trust have to be repurchased by the new trustee (stamp duty implications???) as it is assumed the first trustee will not want to be on the titles anymore?

    Matt R (Gold Coast)

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,173

    Hi MattR

    My understanding is the titles have to be changed to the new trustee’s name, but there is only a nominal fee at the State Revenue office to do this as the beneficial owners remain the same.

    ps where are you studying law?

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Profile photo of redwingredwing
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    @redwing
    Join Date: 2003
    Post Count: 2,733

    I see where you’re coming from 30CH..Thanks

    “Money is a currency, like electricity and it requires momentum to make it Effective”
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