are my personal assets protected ?

hi so i just want some more eyes on this structure my accountant has set up. he has done this to protect my personal assets.
i will be operating a business with a business partner, we have a ptyltd set up however it operates on behalf of a unit trust, of which my partner and i each own 1 unit. the ptyltd is the trustee for this unit trust. i am however the sole director and secretary of the ptyltd.

are my assets at risk from any litigation that may occur from my actions as a employee of the pty ltd ?

just to be clear, none of my assets have been placed in a trust, the accountant explained itr as because we operate on behalf of a trust, and the company is the trustee, it places seperation for me personally if any litigation was to occur from a customer. said they could sue the company and get any assets company owns but couldnt get to me personally, i would be an employee of the business but also director. does this sound correct ?

edit* i posted this in accounting forum but i think this one is more appropriate.

 

Whats the reason for owning the unit personally? All income would be added to your personal income.

would have thought that operating a business using a pty ltd company instead of a unit trust would make it easier to retain profits and sell pieces of itself later on.

 

You have posted this in the legal forum realising it is a legal issue, yet you took legal advice from an accountant?

The short answer is no. Directors can be personally liable in many situations, especially in the areas of work health and safey and human resources.

 

Think the question should always be asked as (to a qualified professional):
What is protected, from what,
What is not protected, from what?

 

well the accountant (long term relationship with this accountant) was the first one to raise the subject of asset protection, and then offered this as a solution. i figured if they are able to set it up they must know what it can and cannot do. perhaps naivety on my part, all of this is quite new to me. its a very small operation, only 2 employees who are myself and the other trust unit holder, its in a small retail environment, with some aspects of medical services.

kind of annoying as asset protection was the driving objective of setting up like this, they said it would only be possible to sue the company for whatever it holds/owns, not myself personally

 

well as it was explained to me, this setup would stop someone from suing for any of my personal assets in event of any issue arising from carrying out business.

 

i guess it would be, but its not a large operation and income would be good, not astronomical though. it was explained as not being the best for tax minimisation, but offer the protection of not being able to be personally sued for any issue arising from carrying out business

 

how much more expensive would it be for a family trust owning shares in a company that operates the business, for example?

does it protect from penalties for directors if trading while insolvent? Why isnt your business partner a director?

 

Yeah you need to stop taking self serving legal advice from your accountant. Asset protection is really complicated stuff and needs a specialist lawyer - I'm not even qualified to advise on it. Stick to getting advice from an appropriately qualified professional.

I have a long relationship with my gardener. He even has what appear to me to be appropriately sharp cutting tools.

I wouldn't allow him to do surgery on me though, even if he "offered the tools as a solution".

He's probably cheaper than specialist surgeon though, so I guess I could save some money.

 

This is certainly not the case. You could be directly and indirectly sued.
There are ways to reduce the risks though.

I had a client that was operating a company which ran a business. He was sued personally. It went to court and he made a large settlement offer to end it on day 2.

 

im not sure about your first question, but as for the second one, im not sure if it protects against those kind of issues, it was supposedly set up to protect me personally against litigation from a client for any issue arising from the service we provide.
not sure why i am sole director, it just was set like that, we will be changing it to add him aswell, as i said, its all very new to me, i just trusted in their expertise

 

many non-lawyers advertise 'asset protection' advice or skills. The average person has no idea who can and can't give this sort of advice.

Someone pointed me to a website of a large accounting firm and they were saying trusts prevent your assets from being attached upon separation in the family law context. Its not true and I have no idea what makes an accountant think it is appropriate to say that on their website.

 

naivety i guess, i figured they were capable of setting up the structure, they must know what it can and cant do. amusing analogy though

 

if this is true why all the shock that i would take this advice from account as correct ? haha

 

It is even illegal for accountants to set up trusts as this involves giving legal advice. They would argue the trust deed is drawn up by a lawyer and they are merely adding a name and acting as a scribe. If this were the case what is the point in using them at all?

 

I am shocked but not surprised!

Think about it, you are were asking about litigation risk - court cases.

 

yeah i get it, call it naivety. to be clear, i didnt go there seeking asset protection advice, i was setting up company and he was outlining the various structures and i asked what the benefits of having the trust/trustee company set up, asset protection was what he said a benefit was, i said that sounds great and here we are.

just out of interest, if this set up doesnt offer what they said in terms asset protection, what is the purpose of it ? ive seen this set up before, so surely it has some purpose ?

 

A company has limited liability and is a separate legal entity to its directors and shareholders so it will offer good asset protection to a degree.

If it is operating as trustee for a unit trust it is a good way for 2 separate parties to have specified 'shares' (in the form of units) which could be easily transferred later if need be.

 

Does your business have professional indemnity insurance (along with public liability and workers’ compensation insurance)?

 

The trustee company will likely also need a workers compensation policy in the event any of its workers are injured temporarily or permanently while performing work. Trust distributions are a form of "wages" for this purpose. The trustee company may also need to consider other insurances (public liability, product etc) . A trust is not asset protected whatsoever for either of these examples. In fact it may just be at risk from a defence claim because it has no insurances. The workers may be at risk and be personally sued as well. eg If you burn down a customers house they would sue both the trustee company and the worker.

Many trustee companies also have invisiblly lost asset protection. A small busienss may sign up for trade credit and give personal Director guarantees and forget doing it. If the trust enterprise fails Bunnings will pursue the Director personally.

Trusts are not a magic shield. They do assist some protection but I find is strange they seek a trust for "asset protection" while being uninsured from basic common risks. A trust is not an alterative to insurance, Workers Comp is mandated by state law. I often ask what asset protection means and they dont really know. Companies can be sued and Directors can have personal liability to some offences.