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Trusts - asset protection

Discussion in 'Accounting, Tax & Legal' started by armorris007, 11th Jun, 2008.

  1. armorris007

    armorris007 Member

    Joined:
    11th Jun, 2008
    Posts:
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    Location:
    Sunshine Coast, QLD
    Dear Gurus,

    I am new to Australia and currently trying to get my ahead around asset protection methods on behalf of my wife whom is a GP.

    Originally from the UK, we enlisted the help of a financial adviser when we first arrived in Australia (12 months ago). They set-up a Discretionary Services Trust (with a trading name) for us, under the guise of 'asset protection' - due to increasing risk of disgruntled patients going after my wife's assets (excuse the pun).

    Now nearing end of year tax time time, we've been told by our new accountant that the structure put in place by our financial adviser offers no asset protection whatsoever, and also because of personal services income rules, she won't be able to benefit from income splitting (not a major concern though).


    The adviser basically setup a Discretionary Services Trust with a trading name which he instructed my wife to use to bill her practice manager for her services. I am listed as Trustee of the Trust she is just an appointer and beneficiary. The financial adviser instructed us to put our house solely in my name.

    Having done the reading I should have done at the beginning of the year, it would seem that we have been very naive in believing this financial adviser. In effect, as trustee, I believe I am open to being sued and in effect - our house is at risk.

    The best course of action that I've heard proposed so far is that of setting up a corporate trustee, and removing me as Trustee. The corporate trustee being a $1 proprietary share limited company - directed by my wife.

    This is where I start to loose grasp of what benefits this offers.

    My real question is, why can't we just change the Trustee to be solely my wife - thus keeping me totally out of the loop - and protecting our main asset - the house?

    Secondly, what is the best structure in order to benefit from income splitting?

    Any suggestions/advice would be most appreciated.

    Andy
     
  2. DaveA

    DaveA Well-Known Member

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    Location:
    Sydney, NSW
    why not use a corporate trustee?? The questions comes is who holds the shares in the trustee and is a director...

    From my limited knowledge, i would of though you would set your wife up with all the risk, and your own home you would have in ur name. Any investments you would have in a seperate family trust where you are the appointer, hold shares in the corp trustee and are a director (this needs to be a seperate corp trustee to the one that is the trustee to your wifes trust)...

    once again this is just my opinion and you should really rely on your accountant, but maybe pitch that idea to him...
     
  3. Rob G.

    Rob G. Well-Known Member

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    Melbourne, VIC
  4. MattR

    MattR Well-Known Member

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    Location:
    Sydney
    Hi Andy

    Welcome to the site

    As per Dave I would think that a corporate trustee be put in place. I would think that your wife as the s/holder and sole director be the go. Whatever happens, get yourself out as trustee - why expose yourself and therefore your assets when you don't need to!

    Also, Rob mentions above that Doctor's have "special" needs and I would concur. There is a long history of ATO rulings and determinations with respect to how a doctor operates/consults etc.

    Here are a couple of items you may want to look at to give you an idea of the history and complexity of the matter;

    This set the tone for many years
    IT 25 - Incorporation of medical practices (As at 7 August 1981)


    This expanded on the above, in particular to your circumstances refer paras 5/6/20/34
    IT 2503 (Addendum exists) - INCOME TAX : INCORPORATION OF MEDICAL AND OTHER PROFESSIONAL PRACTICES (As at 3 November 1988)

    To add a little complexity

    TD 2005/29 - Income tax: will Part IVA of the Income Tax Assessment Act 1936 always apply if a taxpayer who carries on a business (including a personal services business) pays superannuation contributions that do not exceed the age-based limits but a


    In essence I would be careful about the idea of any "splitting" of income measures. Ensure that the Personal Services legislation does not bite you.
     
  5. armorris007

    armorris007 Member

    Joined:
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    Location:
    Sunshine Coast, QLD
    Many thanks to you all for your comments.

    Our accountant has advised us at least to now change the Trustee to my wife's name - which would seem a sensible interim solution, in terms of protecting the assets that I own.

    In terms of the longer term solution, the corporate trustee seems to be what people are advocating, though I'm a little unclear in that situation why a "Services" trust is needed at all then?

    Is she employed by the Services Trust? Or by the Pty Ltd company?
    Does she bill the practice as the Services Trust or as the Pty Ltd company?

    The way things are looking in my mind at the moment, it would seem ...

    1. The practice employs the Services Trust and we bill the practice as the Trust.
    2. She is an employee of the Trust???????? (this is where I'm unclear)
    3. The Pty Ltd company is the sole trustee of the Trust.
    4. As director of the Pty Ltd company, she has the same power as a normal Trustee would have over the Trust - via her role as director of the Pty Ltd company.
    5. If the Trust gets sued - the Corporate Trustee (with it's limited liability) can be sued but only to the limit of it's assets ($1 share). The director (my wife) can't be sued?
    6. My wife can be sued herself seperately from the Trust - therefore anything she owns directly is at risk (this is where a second Family Trust comes into play?)

    How does this sound?

    This is so complicated compared to the UK - whereby if she got sued - her insurance would cover her and that would be the end of it.

    In terms of income splitting - yeah - I'm aware of the Personal Services income rules - and it looks like she falls foul of it - so we'll forget that idea.

    Cheers,

    Andy
     
  6. MattR

    MattR Well-Known Member

    Joined:
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    229
    Location:
    Sydney
    Hi Andy

    My thoughts below in your TEXT. SORRY FOR SHOUTING!

     
  7. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Your mistake is that you're seeking legal advice from people who aren't lawyers.

    Go see a lawyer with a good reputation for asset protection.

    Cheers
    N