Tuesday, November 15, 2016

Domino theory

Previous posts have touched on a number of aspects of asset protection.

One issue that comes up very regularly is the concept of 'domino theory'.

Last week, I had a timely reminder of the importance of this theory and the fact that it does not simply apply where there are two assets of substantial value owned via the same structure.

The situation last week involved a trust which owned a very substantial piece of land to be developed, together with a much smaller (and less valuable) adjoining house on a separate title.

The house was leased out to tenants, and given its nominal value, the controllers of the trust had felt it would be appropriate to leave the house in the same trust, because if something did go wrong on the property development, they could bare the economic cost of losing the house.

Unfortunately, what in fact happened was that the development was proceeding very successfully, however the tenants of the house sued the trust in relation to an accident that occurred, allegedly due to the landlord’s negligence. What this meant therefore was that the successful development was the asset that was exposed because the course of action was against the trust as a whole.

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