Example of asset protection with a discretionary trust

Hopefully the concept of how to utilise trust distributions in my last post was clear and the characters in the example were not too distracting.

By the way if the ATO ever asks you why you have a discretionary trust, please remember not to say for the tax savings; instead mention asset protection and give an example similar to below. (There is a law that prohibits us from doing things just for the tax benefits which is funny because coming to see me can make you a criminal.)

Asset protection

 

Let's say that Sheldon will always be Sheldon so he is always getting into trouble due to his social awkwardness.

And Amy is normal for our intent and purposes despite being one of the few people in the world who can fall in love with Sheldon.

So this couple have been together for a while and have a huge pool of savings so decide that they should invest together as they plan for their future. Amy rejects Sheldon's suggestion of investing in a nuclear fusion plant but compromises and thinks that an investment property would suit them nicely.

Now Amy is worried that Sheldon is a ticking time bomb and will eventually get sued by someone for his reckless antics and outbursts even though he believes that he is always right. For this reason Amy suggests that their investment is purchased solely under her own name.

However Sheldon is a control freak and wants a legally enforced say in the decision making regarding their investment. Since he knows everything, he suggests that the investment is purchased with a discretionary trust where they are joint trustees so that they share the decision-making. This way Sheldon has shared control over the property and can receive the benefits of it such as rental income by naming himself as a beneficiary, but the property is not owned by him. Therefore it will not be listed as his asset if he ever faces personal bankruptcy.

Amy loves this idea and has to comfort Shelden when she tells him that Spock from Star Trek cannot be listed as a beneficiary since he is a fictional character. Let me know if you would like more information about this example of asset protection using discretionary trusts. In the meantime, live long and prosper!