Monday, July 26, 2010

Trustee companies and specialisation

Today’s post relates to an asset protection issue that unfortunately is too often overlooked.

Many of you will have heard our firm (and other lawyers) referring to the 'domino theory'.

This theory is one of the very basic asset protection concepts of ensuring that there is a deliberate limit placed on the number of assets owned by any one entity. Furthermore, the assets owned by a particular entity should be of comparable risk profiles.

A similar issue arises in a slightly different context where a company acts as trustee for a trust. In this situation, while the company will be the legal owner of all assets of the trust, it will not have beneficial ownership.

In a number of instances recently, we have seen situations where the trustee company does in fact own assets in its own right, even if this is simply cash, unpaid entitlements or at call loans.

In these situations, those assets are unnecessarily exposed to difficulties that might be encountered by the trust.

In order to maximise the trustee company structure, care must always be taken to ensure that its assets are no more than the initial capital paid up on establishment of the company (i.e. $2).

Next week, we will look at the specific scenario today’s post was inspired by, that being a trustee company that had also been used for many years as the corporate beneficiary for the trust.

Until next week.

Matthew Burgess

Monday, July 19, 2010

Insurance funded buy-sell arrangements

Over the last 2 to 3 years, there has rarely been a week gone by where we have not been fortunate to help a risk adviser implement an insurance funded buy-sell arrangement with their clients.

One issue that comes up surprisingly more regularly than it probably should occurred again last week in relation to the structure of these arrangements and the use of options.

There is an enormous amount of material on insurance funded buy-sell deeds (if you are interested, spend some time looking at our website – see the following link

Invariably, most advisers in this area will, for a multitude of tax and wider commercial reasons, recommend an option based contractual arrangement – these arrangements provide the most amount of flexibility possible for each party.

Where however a discretionary trust is involved in the business structure, it is generally the case under trust laws that the trust deed must expressly permit the granting of options.

The technical reasons for this position revolve around issues concerning the fettering of a trustee’s discretion – practically however the position is that unless the trust does have the power to grant options at the date the buy-sell agreement is signed, there is a risk that the agreement may not be enforceable as otherwise anticipated.

Until next week.

Matthew Burgess

Monday, July 12, 2010

Can an enduring attorney be a company?

The issues in relation to attorney appointment over the last couple of weeks have generated a number of questions and comments.

One common theme has been in relation to the distinction between the appointment of an attorney and the role of an executor and/or trustee under a will.

There are a number of distinctions between these various roles, however one of the overriding practical points is that the appointment of an attorney can generally only be of an individual person.

In contrast, the appointment of an executor or trustee can be of a company or a particular role – for example, you will often see the executor of a will being crafted so that it is the 'senior partner from time to time in the firm of . . . . . .’.

Until next week.

Matthew Burgess