Trusts - one for business, one for properties

Hi everyone,

I am currently waiting on advice from my lawyer, but thought I'd post it here as I always get great insight and knowledge from all of you.

Situation:
We've just set up Trust 1 (to be known as 'Small-Business Trust'). It has a corporate trustee with my spouse as the sole director for running her small business.

We are now ready to set up Trust 2 (to be known as the Property Trust). I was originally advised that I should be the sole director of this trust.

Questions:
1. If I'm the sole director on the Property Trust, won't that largely limit our borrowing capacity?
2. If we are co-directors on the Property Trust, are the assets still safe? I.E. If someone sues my spouse via Trust 1, can they take the properties in Trust 2 if she's a director?

Thanks in advance. I'm just learning

 

sole director of the trustee

1. possibly
2. Directors sometimes go down with the company,
3. depends on how it is structured and transacted. From what I have seen of most people they have sloppy set ups and are at risk.

 

One concern that could impact you that isnt clearly apparent and why legal advice on setup is important.

Lets say you and wife own your own home. Wife has dealings with suppliers and is asked to give Director guarantees for the active trust. She does this over a few years and signs these for Telstra, car finance and rent as well as trade suppliers say like Bunnings, Turks and other materials suppliers lets say. Many people never even record these (or remember them). Later business is insolvent and a liquidator is appointed. Those parties could pursue wife for the liability and shortfall from liquidation. The liquidator may hold wife liable for a period of insolvent trading too. Or debts owing to the company. The home could be exposed to a claim. And you arent even a party to that trust.

The passive trust (property) would have a less likely issue - Its exposure is more limited to a collapse in property value but is only triggered if a sale occurs or is forced (ie mortgagee sale)

 

Would this scenario be different if home is owned in 1 name? Are marital assets considered?

 

One for a lawyer but if the Director of the trustee for active trust gives guarantees then any assets they own personally or jointly own could be at risk to the extent of the claim.

Ideally the Director of an active trust shouldnt own property if they are exposed to asset protection concerns. If the property was highly encumbered through a genuine loan facility etc the net asset value may be negligible. We often see this asset protection concern with professional advisers, medical specialists and the like. If PI risks are high legal advice on their asset structuring is important. And that means before they buy.

If the owner of the home was say the hubby it may give a degree of protection but may not be a 100% certain safeguard. Terry may be better explaining

 

If A owns a property but B pays for it then the property could be exposed if B goes down.
I have written a few legal tips on 'constructive trusts' and 'resulting trusts' which may be worth a read.