All Topics / Legal & Accounting / ASSET PROTECTION = BUY IP AS TRUSTS?

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  • Profile photo of jubbjubb
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    @jubb
    Join Date: 2006
    Post Count: 2

    Recently read article “Ed and Helen also have an asset protection strategy…..(…protection against litigation …could wipe out an entire portfolio). from API March 2006 issue story p48 by Michaela Ryan.

    Q. Why would IP need to be bought only after setting up as a trust. Is this a ‘family trust’ if wife & hub? Is one trust fits all IP? or one each IP? IP certainly seems more complex…

    Not sure what sort of litigation could lose property portfolio. Thought landlord insurance covers most events?[confused2]

    Profile photo of catacata
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    @cata
    Join Date: 2005
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    Hi Jubb

    One type of trust will never fit all. There is some trusts that will suit you more and some would not suit you at all. Purchasing an IP in a trust will limit your exposure to any claims made against you.

    Eg. PPOR is in your name, IP in a trust A (some have one trust for each IP, but most will settle for 4-5 IP’s per trust. It is a personal choice but also a financial one).

    Insurance is important but will it cover you? That depends on what has happened. If you are found not to have kept the IP in good tenable repair, therefor exposing the tenant to a risk of injury insurance may not cover you. Negligance is a criminal act which is not insurable.

    A tenant sucessfully sued her landlord for $1.2 mill for tripping on a hole in the carpet, claiming chronic back pain. This could wipe out many investors as most will not have a lazy $1.2 mill to pay this type of bill (plus legal expences).

    I believe that insurance companies are out there to make money. For this to happen, the less payouts the better for the share holders.

    Hope this helps

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of bennidobennido
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    @bennido
    Join Date: 2004
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    I was flipping through a Margaret Lomas book and she says that trusts are a waste of time and do not really offer any protection.

    What do you guys think of her statements ?

    Profile photo of BarbaraBarbara
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    @barbara
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    I have all her books, and think she’s great.

    That statement is very provocative.Think you need to add a bit more detail to prevent an outcry.[comp]

    Profile photo of TerrywTerryw
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    @terryw
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    Assets owned by a discretionary trust are generally safe if the person goes bankrupt. You may think you will not go bankrupt, but this can happen for many innocent reasons – eg you own a business and your major creditor goes under owning you large sums of money that you can never recover. You business collapses as a result, and you have guarranteed a 5 year lease at $20,000 per month.

    Terryw
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    Profile photo of bennidobennido
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    @bennido
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    I was just going through one of her books at Borders yesterday when I came across the part where she expresses her opinions on structures like trusts.

    Naturally, it stumped me coz it kinda goes against general opinion here. I’ll pop by Borders tomorrow and see if I can find it again so I can post the book title here .. :)

    Profile photo of catacata
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    @cata
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    This is Margaret Lomas opinion. I suggest you learn about trusts and why people use them and make an informed decision for your own personal situation.

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of redwingredwing
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    @redwing
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    Originally posted by bennido:

    I was flipping through a Margaret Lomas book and she says that trusts are a waste of time and do not really offer any protection.

    What do you guys think of her statements ?

    Agree..what book-page etc..?

    PS- There’s more to Trusts than Just Asset Protection [wink2]

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of bennidobennido
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    @bennido
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    Was out shopping today and passed by a bookstore so I double checked the title.

    Its called The Truth About Positive Cashflow Property and there’s a whole chapter on structures (e.g. trusts). Basically, her opinion is that they fail in their intended purposes.

    Profile photo of redwingredwing
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    @redwing
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    Originally posted by bennido:

    Was out shopping today and passed by a bookstore so I double checked the title.

    Its called The Truth About Positive Cashflow Investing and there’s a chapter on structures (e.g. trusts). Basically, her opinion is that they ail in their intended purposes.

    Hmmm..

    I’d speak to someone who uses them to thier best advantage then for an opposing view, there is also a great deal of information about using them to thier best advantage for;
    Asset Protection
    Retirement Planning
    Succession Planning
    Taxation

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of catacata
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    @cata
    Join Date: 2005
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    I (and alot of others I know) do not agree with her on this subject.

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of bennidobennido
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    @bennido
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    Don’t get me wrong, I neither against or for the trust structure. Frankly I don’t know enough to have an opinion either way.

    Thought I would just raise another view on trusts from an experienced and respected property investor for consideration and discussion.

    Profile photo of noddiesnoddies
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    @noddies
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    Hi all[biggrin]

    I was flipping through a Margaret Lomas book and she says that trusts are a waste of time and do not really offer any protection.
    What do you guys think of her statements ?

    It seems a popular ‘fad’ amongst accountants currently to sell a Trust structure on the basis of providing asset protection alone. Since Accountants may not be universally trained, or up to date in commercial law, they often miss what the full legal situation is surrounding Trusts.
    Why TRUSTS are becoming so popular, apart from being cheap and easy for accountants to set up at a profitable price, is because of the (mistaken) belief that a Trust can somehow own or control assets in its own right. That is not true.
    A Trust is NOT a legal entity in the sense that it can own anything itself. Only the trustees or members as trustees can legally own the assets of the trust, albeit jointly, on behalf of the members or beneficiaries of the Trust, or a separate Trust as beneficiary, or beneficiary-company.
    Trustee Members and beneficiaries can still be individually sued and their assets seized or their share in assets held jointly with others frozen, if they are found liable for the recovery of the full amount owed.
    A Trust therefore gives no added protection in a tort (civil claim for loss or damages through the courts) that can accurately target responsibility under the CORPORATIONS ACT at any individual involved in a company in some way, which may have defrauded or failed in a duty of care to, a client or supplier, or even another employee.
    So, what is the upshot of this long description? – Simply that setting up a trust to avoid having your assets attacked would give you no additional security, if you are thought to have been complicit in any illegal activity by the company or any failure of duty of care in a tort.
    You can still end up with a judgement debt against you personally that will defacto force you to re-acquire the legal ownership of those assets from the Trust and sell them, or at least direct your trustee to sell, any assets you may now only hold (beneficially) through the Trust.
    Nevertheless, a trust does let you decide which assets you keep and which you sell, rather than a court or administrator/liquidator making that decision.
    The fundamental purpose of a trust, from a legal point of view, is to distribute funds or income held, or received, in trust.

    Regards
    Bryce Inglis
    Financial Advisor
    [email protected]

    Replies on this site are intended as general information only, as any specific investment solutions/advice must only be given in accordance with the requirements set out in the Financial Services Reform Act 2001 and the ASIC guidelines as set out in PS146.An appropriate professional should be consulted for specific advice

    Profile photo of stuck-at-twostuck-at-two
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    @stuck-at-two
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    Wait Wait Wait…

    “A Trust therefore gives no added protection in a tort (civil claim for loss or damages through the courts) that can accurately target responsibility under the CORPORATIONS ACT at any individual involved in a company in some way, which may have defrauded or failed in a duty of care to, a client or supplier, or even another employee. ”

    Does this mean it only applies if you are working in/or as a company.(director of company)???? If I am a purchasing I.P’s under a trust, then get divorced,(properties purchased before marriage) this still means my wife cant get access to these properties right??? Or if the properties are pucrhased under the trust, and I live with a girlfriend for 5 years, she still cant sue me for part of these properties, as I dont own them.

    Question is, the above statement refers to employess of company’s or directors right???

    Profile photo of catacata
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    @cata
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    You seem to be missing some important points Noodles.

    “The fundamental purpose of a trust, from a legal point of view, is to distribute funds or income held, or received, in trust.”

    If the sole purpose of a trust is to distribute funds then this is not tax minimisation but tax avoidence, the sole intent being to “Not Pay Tax” is part 4a of the tax act. I would be more worried about the tax office chasing me.

    How can you say this is the legal point of view when it concerns
    income streaming? Last time I looked solicitors/barristers were not qualified to give income streaming advise.

    “A Trust is NOT a legal entity in the sense that it can own anything itself.”

    This statement while true is a very grey area. A trust has it;s own common and tax laws that it must follow, and because of this it has been successfully argued that it is a seperate legal entity ( just not in court YET).

    “Simply that setting up a trust to avoid having your assets attacked would give you no additional security”

    This statement is also lacking the big picture aproach. It is all about limiting liabitity . Yes the assets in a trust can be clawed back in certian circumstances, but that limits liablity to one entity, not every entity that you use for investment/business etc.

    “Why TRUSTS are becoming so popular, apart from being cheap and easy for accountants to set up at a profitable price, is because of the (mistaken) belief that a Trust can somehow own or control assets in its own right. That is not true.”

    I don’t know who you have been talking to, but a good trust is not cheap or easy to set up. I have seen some on Ebay for $37.50, but you get what you pay for. You also seem to miss the importance of a corporate trustee (which is a seperate legal entity).

    I know of some Financial Planners/Advisers who have been qualified in 21 days. Yes, you read that correctly, the PS 146 I believe is not hard to obtain and allows you to become someone who is suppose to know about finance. That qualifies you to advise people to invest with Westpoint.

    This is not a “Fad” as you seem to put it.

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of catacata
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    @cata
    Join Date: 2005
    Post Count: 559
    Originally posted by stuck-at-two:

    Does this mean it only applies if you are working in/or as a company.(director of company)????

    DIFFERENT CIRCUMSTANCES WILL HAVE DIFFERENT OUTCOMES. IF YOU ARE IN A LOW RISK BUSINESS YOU SHOULD BE OK.

    If I am a purchasing I.P’s under a trust, then get divorced,(properties purchased before marriage) this still means my wife cant get access to these properties right???

    THIS IS DIFERENT AGAIN AS IT RELATED TO FAMILY LAW. THE FAMILY LAW COURTS HAVE THE POWER TO LOOK THROUGH ANY STRUCTURE.

    Or if the properties are pucrhased under the trust, and I live with a girlfriend for 5 years, she still cant sue me for part of these properties, as I dont own them.

    BEING A DEFACTO FOR MORE THAN 3 MTHS THIS WOULD GO TO THE FAMILY LAW COURT.

    Question is, the above statement refers to employess of company’s or directors right???

    IF YOU HAVE BEEN NEGLIGANT YOU ARE LIABLE.

    Sorry about the caps, it looks like I’m yelling. The facts are that if you do something wrong you can get in trouble. Nothing new here.
    Hope this helps

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of stuck-at-twostuck-at-two
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    @stuck-at-two
    Join Date: 2003
    Post Count: 54

    Yep, slightly confused now. (sarcastic)
    I thought “Trusts” were a form of Asset Protection that couldnt be touched by anyone, since “I” dont essestially own them.

    So, given the hypothetical situation of my wife/girlfriend seeking part of a property owned by a Trust, that I am a beneficiary of, I thought it was protected, yet now it seems,
    1) The Family Law court surely could investigate the structure, see I am a beneficiary, and order when the IP in the Trust is sold, or I recieved beenfits from this trust, she can then have part of the (% of) benefit…True????. If the family Law Court can do it, surely other government agencys can as well. Which would then mean Trusts, as far as asset protection is concerned are worthless. Surely I am missing something here? (leaving out tax implications for setting up trusts and focusing on Asset protection)

    Profile photo of noddiesnoddies
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    @noddies
    Join Date: 2003
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    Hi All [biggrin]

    given the hypothetical situation of my wife/girlfriend seeking part of a property owned by a Trust, that I am a beneficiary of,

    Trusts are set up to automatically cover immediate family including unborn children as beneficiaries

    Leaving out tax implications for setting up trusts and focusing on asset protection

    Asset protection is best achieved by appointing a Pty Ltd Company as Trustee where the liability is limited to the amount of company shares issued. This can be a small amount for example 10 shares valued at $1.
    The company acting on behalf of the Trust (as a trading company) does not increase its worth with the actual assets being held by the Trust.
    However if a bank loan is involved this can be negated as it is usual for the Bank to arrange for the Directors and/or Trustees to give guarantees to the bank as a condition of the Loan.

    Regards
    Bryce Inglis
    Financial Advisor
    [email protected]

    Replies on this site are intended as general information only, as any specific investment solutions/advice must only be given in accordance with the requirements set out in the Financial Services Reform Act 2001 and the ASIC guidelines as set out in PS146.An appropriate professional should be consulted for specific advice

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

    The trustee company should be a NON Trading Company. If the company trades there is an avenue for litigation. I use either 1 or 2 shares, one for each director. The director being garantor of a loan inside the structure will not hurt your asset protection. It could prove to be beneficial for you personally as it could be seen a personal debt.

    The purpose of a trust is to limit exposure. A trust can have the assets clawed back, but it is a long and lengthy process. Most lawsuits will either be dropped or settle out of court cheap if the trust deed is any good. If it is poorly structured it will give little protection.

    Being the beneficiary of a trust, your girlfriend could possibly get a % of the distributions paid to yourself while you are/were together.

    The ATO has alot of power is this area, but if you are paying the correct amount of tax there isn’t anything to worry about. Tax minimisation is legal, tax avoidence is not.

    NSW, Qld and Vic are the 2nd, 5th and 8th most litigated states in the WORLD. For me this statement alone is enough to at least consider structuring your assets.

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of TerrywTerryw
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    @terryw
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    My understanding of trusts and asset protection is this (I am not a solicitor or accountant).

    Assets owned via a trust are not owned by the trustees or beneficiaries. So if a trustee is sued personally, their assets in the trust are relatively safe. If they get a judgment against them, their personal assets can be seized by creditors, but the assets in a trust cannot – generally.

    However, if before going bankrupt they sold their house to someone (including a trust) within a certain time frame, this sale can be reversed. This time frame was 6 months but recently the law changed on this – think now 5 years.

    If the trustee has taken a loan out to buy a property, and guarranteed this loan, if the property were to be taken back by the bank (ie foreclosen upon), the trustee’s personal assets will be at risk if there is any short fall. This is because of the personal guarrantee.

    Same with a business. If you are using a trust to run your business, and have a 5 year lease with a personal guarrantee, if the business fails, you will still be personally liable.

    If you are a trustee and have investment properties with problems, the tenant may be able to sue the owner if injured – the trust, and other assets of the trust may be at risk. (this is why some people set up new trusts after a few properties).

    I think the trustee may be personally liable as well in certain circumstances. Hence, some people use a company as trustee, so if that happens, the company can be woundup – it will ahve no assets.

    If you are running a pty ltd company, directors are protected to a certain degree as well. eg you rent a place, without a personl guarrantee, the business fails – you can wind up the company without your assets being at risk.

    But if the director of the company has done something illegal (such as trading while insolvent) then they can be personally sued with their own assets at risk.

    With the family law court, they can look behind the trust to determine the ownership of the assets. So if you control a trust, and get divorced, you spouse may still have a claim on those assets.

    Centrelink are onto trusts as well. If you are trustee, director of a trustee company, or appointer, beneficiary etc, then Centrelink will look at the assets and income of the trust as if they are your personal assets.

    If you are a drug baron, growing marijuanna in your trust owned farm, the property can still be seized by police. etc etc.

    Trusts are certainly not worthless and offer the best form of asset protection.

    Terryw
    Discover Home Loans
    Parramatta
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    Just send me a blank email, with “subscribe” in subject line.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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