trust advantages

asset protection, tax planning, retirement, super, income , looking after your family and building your wealth faster..

any more?

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

Hi All,[biggrin]

Is there a need for a Trust structure?

Addressing the potential of being sued?

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.

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

This legal structure was never intended as such, to provide protection from litigation for companies or individuals who may be liable for their actions.

Whilst the CORPORATIONS ACT enshrines the legal notion that a PTY LTD company’s liability is limited to the value of it’s paid up or even nominal capital, plus whatever assets it has, ASIC has been quite rigorous in also defining the duties and responsibilities of directors in the same Act.

If it is clear that a director has acted improperly or irresponsibly or illegally, they also can be pursued as liable, if they have knowingly harboured away the assets of the company over time.

In a situation of sole directorship, the scrutiny of ASIC can also turn to employees of the company who may be complicit in any wrongdoing and receiving of assets from the company.

This makes for a situation where, despite whatever protective procedures may be put in place for assets transferred from the company to individuals, the common legal practice is now to sue both the company and those who had ‘control of it’, who might also be able to be shown, received assets from the company, as a means of avoiding payment of the company debts.

HIH is a good example, even though not a Pty Ltd company, of what happens when ASIC decides to pursue both directors and employees.

However, if an employee, or better still, a sub-contractor of the company, is simply doing their ordinary job and receiving their normal salary, there is NO precedent for them being sued by a creditor or a litigant, unless they personally failed to exercise a duty of care, which then lead to a loss by the litigant.

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.

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.

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.

The fact that a Trust has separated your legal ownership from your beneficial ownership of the assets the company accumulates creates no limitation of personal liability under the law.

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.

The point is, if you are sued successfully, no matter how your assets are ‘protected’ or legally disjoined from you or the company, you will still need to have sufficient capital to avoid going to jail or avoiding bankruptcy and barring from being a company director for five years.

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. You decide whether you want the extra expense (probably around $900+) of setting up a Trust which will have you as beneficiaries and the company as the Trustee for the Trust, Trust accordingly, with the investment company becoming the corporate trustee of that asset also.

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

HI Terry[biggrin],

You say that a trust give no added protection. But what if someone is pursued by ASIC for corporations offences and is basically sued? Having their personal assets owned by a trust would surely add extra protection in this case.

Are you discussing a trust that owns assets, or a company owning the assets and the trust owns the company and distributes the profits?

In the Dale Gatherum-Goss Book, Trust magic, the author argues under the section “protecting your wealth” (page 15) that if a trust is sued then the appointer sacks the trustee and appoints a new trustee, the original trustee having lost all his assets, and that “a new trustee has taken control of your assets and they are safely tucked away out of reach”.
On a practical Level if you are pursued by ASIC these antics will only make them more relentless as being the new regulator on the block they are very determined and if anything this can make the penalty more severe.
I know personally know of two cases where one person was a whistleblower and the other was a witness for ASIC, the experience caused both of them to be traumatized (enough for one to leave the industry).
I can only surmise the affect of a person who is defending against an ASIC allegation and it is a position I would not recommend anyone to be in.

In Summary my opinion is that mechanisms to evade the law will not stop legal proceedings by ASIC against all related parties.

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

Hi Redwing,[biggrin]

I don’t go to wealth creation seminars, as under the Financial Services Reform Act they are only allowed to talk in generalities and includes a fair dose of claptrap.

Remember Wealth Creators usually know how to press their audience’s greed buttons and play down risk factors. Please bear this in mind when attending as all strategies involve some level of risk.

Emotional appeals to the audience abound, for example

“What is the ‘great Australian dream”?

“I believe that there is no such thing as ‘the great Australian dream.”

“Every person must have their very own dream”.

“If you dare to dream big, you can achieve your dreams with some work and education. If you dream small, that is all you can expect to achieve. There is no limit to the wealth you can achieve”.

If you analyze this sort of thing you finish up with vomit material.

I don’t know his material so did a quick internet search, turned up the inevitable Jenman and others (it was usually uncomplimentary stuff), found his own site which didn’t impress and wondered why people would pay money for non specific advice.

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

Hi Redwing[biggrin]

Perhaps we should transfer it to Forum Funnies

PS
love the colors,Red suits you very well

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

Doing a bit a net surf a while back and came across an interesting read by Stuart Wemyss, a regular poster here.

http://www.prosolution.com.au/articles/structure3.pdf.

Good information Stuart!

Thanks for the feedback jhopper.

Link doesn’t work because there’s a full stop behind it.

Try: http://www.prosolution.com.au/articles/structure3.pdf

More articles at: http://www.prosolution.com.au/free_articles/articles.php

Cheers

Stu