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
