In today’s show together with Ken Raiss, from Chan & Naylor, we answer your question: “My landlord insurance policy covers me up to $20 million in liability, I can’t think of any unfortunate situation where all of that would be used it. Is asset protection merely an additional feature of trust structures rather than a predominant reason to set one up?”
Kevin: A few weeks ago, we answered a question from Dimitri to do with trusts, and following that, I received an e-mail from Will. Will, thank you for that, a follow-up for Ken Raiss, who will be with me in just a moment.
The question for Ken comes from Will, and it says, “Re purchasing investment property in my own name versus a trust. On today’s show while answering Dimitri’s question on a similar topic, you stated there’s another issue, as well: asset protection. If you have too many assets in a trust, then if one tenant sues, it could be a house of cards that falls down, and all your assets then in that one trust are at risk.
“My landlord insurance policy covers me up to $20 million in liability, I can’t think of any unfortunate situation where all of that would be used it. Is asset protection merely an additional feature of trust structures rather than a predominant reason to set one up?”
Ken Raiss joins us from Chan & Naylor. Ken, thank you again for your time.
Ken: No, it’s a pleasure, Kevin, and great question from Will.
Kevin: It is indeed. Let’s step about answering it for him.
Ken: Trusts really have four main benefits. Asset protection is one, because you don’t own the assets. Flexibility, cash flow, and estate planning are three other quite significant reasons. You should also have a company as a trustee of your trust, not the individual – because for asset protection reasons, the company closes the loop.
While a lot of people say they have insurances and they hope that their insurance cover is enough, we have to be careful: will the insurance company pay off? Because if they believe part of the responsibility lies with you, then they won’t always cover it. Such as you need to do a repair, you may not do it in time, your agent may not tell you in time, or there could be issues with fire.
A lot of people sometimes are underinsured. If their property burns down, burns down the property next door, they’re up for the difference if they’re underinsured. There are many, many reasons why insurance cover wouldn’t be enough, so that’s one of the reasons then people have limited assets in a trust, just in case.
But what you can do is you can protect just your equity in a trust by doing things such as the Equity Bank Trust.
Kevin: What is that again, Ken?
Ken: It’s the Equity Bank Trust. What we do is we shift all the equity from either your personal names or from trusts into a much more secure area that carries normally no liabilities. When you do that, you get asset protection without triggering the normal taxes such as capital gains and stamp duty. We transfer the equity, not the physical asset.
Kevin: This is something that can be done through Chan & Naylor?
Kevin: We’re hearing some horror stories with rental units, too, where tenants fall off decks or broken steps and so on. That liability issue that you talk about there, Ken, is a very, very real one, isn’t it?
Ken: Correct. I think particularly in today’s environment, we shouldn’t assume the insurance companies will always pay.
Kevin: Yes, indeed.
Ken: They’re looking for reasons, and sometimes they can just drag you through the courts and even if you’re right, the mere pressure of finding money in time means you’re out of pocket and you could lose everything.
Kevin: No doubt, we will have been an early-warning device for a number of people. If you would like to find out more about this, you can contact Ken Raiss at Chan & Naylor. They’re our trusted advisors.
Ken, once again, thank you for answering Will’s question. Great talking to you, as well, mate.
Ken: That’s a pleasure, Kevin, and thank you, Will.