I am wanting to purchase land along with 2 mates and am looking at the easiest structure. Is a partnership where 3 discretionary trusts jointly purchase the land, as viable as, a unit trust with the discretionary trusts the benefiaries. If the unit trust is the preferred structure then is a company best being the trustee?? Any pros and cons with these structures would be most appreciated. PS: My accountant is currently away!!!
I don’t know a lot about unit trusts, but I know a little about discretionary trusts. One thing you need to check with discretionary trusts is whether friends can create one together…someone told me it is only a family trust. But I don’t know if this is true.
Obviously you are creating your trust structure for asset protection and ease of finance. You probably don’t need to create 3 trusts to buy the property, only one. If you can create a discretionary trust with friends then you could start the trust, with all 3 of you as named beneficiaries, and all three of you as appointers (appointers have ultimate power is to who the trustee is), Then you could create a non trading company) in which you each are directors and each own one share to act as the trustee.
If someone hurts them self at the property they will sue the trust. If the trust has been negligent then insurance will not cover the claim so they will get whatever the trust owns. If the land in the trust does not completely cover the law suit they then move up to the trustee and sue the trustee. This is why you have the company as the trustee.
The directors of a company are only liable for the workings of that company if it is trading insolvently. If you have a non trading company this cannot happen. Thus the company is liqified, they get the $3 worth of shares and the law suit stops. Your other personal assets are not at stake.
Technically you only own a $1 share in a company, the trust owns the land. So if someone sues you personally then they get your share in the company. You can then (I think) create a new company and as the appointer, get rid of the first company as trustee and appoint your new company as trustee. So you never lose your property.
Don’t take all this as law though. I am not an accountant so see an accountant before doing anything.
Hopefully you can create a discretionary trust with friends. I don’t know much about unit trusts sorry.
Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click AwayRyan McLean | On Property
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