Legal Tip 61: Multiple Trusts as an Asset Protection Strategy?

Multiple Trusts as an Asset Protection Strategy?

A while back I mentioned that if the trustee of a trust is sued the assets of the trust can be used to satisfy the liability of the trustee if that debt relates to the trustee’s role as trustee.

This means where a $2 company is trustee of a discretionary trust and a tenant slips and falls and sues the owner of the property, the landlord, they will sue the company and the company will use the trust assets to satisfy the debt.

So if the trustee owns 4 properties within the one trust and the tenant of one property slips and breaks their back the equity in the other 3 properties will potentially be at risk.

However if there were separate trusts the assets of each trust would be segregated from the other trust - generally, as there are always exceptions.

So one other way to strengthen asset protection is to use multiple entities. Carry different eggs in different baskets so that if you drop one basket you don’t break all your eggs.

 

How do banks deal with that ?

Lets assume XYZ Pty Ltd ATF for Trust 1, Trust 2, Trust 3 and Trust 4.

Will bank lend to XYZ using security of Trust 1 for Trust 3 ? My understanding is they are only going to lend to XYZ P/L if Trust 1 is the buyer since Trust 1 land is the security. They don't want to be involved in a potential claim between beneficiaries of #1 and #3 if it occurs.

The issue of banks only lending to the trustee is getting tougher. As someone who see s the legal, trust and lending issues whats the position ??

 

The ideal would be to try all trusts as separate and not use the security owned by one trustee for a loan to another trustee - that would be cross collateralising anyway.

In theory one trust could allow its security to be used by another trust - but I have never seen it happen and don't know how the banks would treat it.

 

To clarify on this, as you answered a similar question of mine relating to this topic.

So the same company could be trustee for multiple trusts, but only the related trust would be at risk, as per you tenant injury example? And this would be the same if the trustee was an individual, all the other trusts that the individual was trustee for would not be at risk, but from what I've gathered, the personal assets of individual would still be at risk, is that right?

 

All personal assets of a trustee are at risk

 

Is there any benefit/point of having a different corportate trustee for each trust? Or it's just simpler to use the one corporate trustee for multiple trusts?

 

I wouldn't recommend having the same corporate trustees. Think land tax and loans.

 

If a property owned by a corporate trustee of a trust and the trust let the property to a company which is owned by the trust, the company sublet to another tenant, the tenant falls and got injured. Can the tenant sue the trust or only the company?
Thank you!

 

A trust is not a legal person. See my tip on trustees getting sued.

Also see the tip on shareholder getting sued

 

Sorry I did not make it clear. I was wondering if the tenant can sue the trustee of the trust or only the company which sublet the property as a head tenant?
I was thinking if the tenant can only sue the the company then the assets held by the trustee of the trust would be safe?

 

Shareholders generally can't be sued

 

so different corporate trustee and trust, are treated as seperate not aggregate, isolated per trustee ? I thought associated by being directors added up ?
Also thankyou for some great posts, I’m new here and working my way through the wisdom

 

Separate for what?

 

So

For each property there is a different corporate trustee and trust?

 

Not sure what you are asking, but a separate trust or company for each property would improve asset protection.

 

What if there was one Pty Ltd Trustee (ABC Pty Ltd) for two trusts (T1 & T2) and two properties (P1 & P2).

Say in January tenant in P1 slips.

In February, the Trustee of T1 was changed to a new XYZ Pty Ltd.

In March, tenant is well enough to sue.

Do they sue ABC Pty Ltd who was Trustee at the time of incident or XYZ Pty Ltd who is the owner at the time of legal action?

 

@Millie - I assume you plan to have appropriate level of insurance to cover such risks. You may not need the fancy layers of asset protection if you maintain your properties in good order. It may be that the cost of maintaining the asset protection entities will be greater than the cost of a good insurance policy.

 

They would sue the negligent legal person which would likely be the previous trustee who would be indemnified out of the trust assets

 

I have found your list of tips and have started at number 1, there is so much information I have been looking for ages, thank you so much for your time legend

Apologies poorly worded question & I confused myself - I have been trying to make sense of Land tax and trusts | State Revenue Office

I had read your post as one of the benefits of corporate trustee was that meant a different holder/owner (trustee) per trust property dose not get pooled ,

This would mean that the land tax would be on that single property (properties per trustee), not the total value of properties if individual is trustee (properties per individual)

This would then attract a lower % cost of land tax ????

Hopefully a little better explained and not to fair from the mark,

 

My discretionary trust does not own any land directly. There is always an interposed unit trust or company which is the land owner.

So one “master” trust, and no risk of liability arising from one property spreading to other assets.

In my view, shares and bonds should be the only assets owned directly by a head trust.