Hi,
Following the advice I gained from Steve McKnight’s “Wealth Guardian” package, I consulted with my accountant to set up a Family Trust for investment purposes.
I already have started trading shares in the trust, and also have set up a $100k LOC facility on our freehold family home to provide deposits for +ve geared IP purchases (as well as share trading capital).
However, when I saw my mortgage broker last week to get pre-approval investment loans to go out and find IP’s, she suggested that I should not be using my trading company as trustee. As I would not be getting full asset protection in case someone from my business tries to sue my company.
I am a sub-contracted sales consultant for a large project home builder, and use my trading company to deal with the builder (as well as selling production music CD’s & software online). I am the sole shareholder & director of my trading company.
Am I risking assets in the trust if I also use this trading company to act as trustee? Esp. if someone sues the company.
My mortgage broker was worried that if my trading company was made bankrupt, and as all my IP loans are in the name of my trading company as trustee, things could get messy. Esp. with stamp duty costs if the company name on the titles of the IP’s had to be changed.
So before I spend a few hundred $ seeing a corporate structure solicitor she recommended, any insight and input would be appreciated.
BTW I queried this with my tax accountant but this situation seemed to be more of a legal issue than a tax issue for him to advise me on.
Thanks,
David
David Paxton
“You Only Live Twice”For a $1000 to setup a new company, it may be worth it. Some lenders will even refuse to lend to trading companies for the reasons you mentioned. You could still distribute income between trusts, which would allow you to use any losses from negative gearing property.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry, you’re strategy is workable so long as one trust a beneficiary of the other. But then you get nested trusts which the taxman can take a dim view of.
Agent007’s basic problem is this:
Let’s assume s/he builds up assets of $500k for the trust. Let’s assume too that there is a successful action against the trading company for $1m and there are no assets in the $2 trading company to meet the judgement.
I am the creditor and I do a search and see that there are assets in the trading company’s name for $500k. I naturally put my hand out and attempt to take them as part of my judgement.
Agent007 stands up in court and says ‘You can’t do that, those assets are owned by my trust’.
To which I say – “Prove it”.
Agent007’s success at defending the position would come down to both paperwork and or his/her credibility as a witness (which could be rattled as a result of the court case).
I say – why take the risk in the first place and would never advise a client to use a trading entity as the trustee of a trust structure. Especially for the sake of saving such a minor amount of money in the overall scheme of things.
In fact I go the other way and tell my clients that the trustee company SHOULD NEVER trade in its own right, even though legally it could do so.
Hi Betterbiz.
That is what I tried to say. it is only going to cost another $1000 to set up a new trustee company so that the trading company is kept totally separate. The trust could then possibly hold teh shares in the trading company so all the profit could flow into the trust.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks guys.
Bugger it! I just posted a long reply but didn’t log on to this forum first, so it deleted my post – maybe Steve, it should keep the post saved after login.
So, all I’ll say now is that the solicitor said exactly what Betterbiz said. And my millionaire mate who owns a trading company & super fund, controls 4 companies to keep his trading activities separate from his investment activities.
Gotta go & do some work now….
David
David Paxton
“You Only Live Twice”
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