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Safeguard personal assets of the family against claims by creditors and transfer of shares



 

Creditor Protection

Any Creditors ,who pursue their claims against property of Settlors who have legitimately  transferred their Assets  into a Trust, will have their claims rebutted by the Family Trust construction. This will only work if  such a Trust has been set up and managed  properly.  This is extremely important for anyone who takes risks in business or otherwise. Most Professionals know that damage may be caused for which they can be held liable, even without their knowledge or personal involvement.

Typical examples of Assets which qualify for protection by means of a Trust are the residential home or investments and any other savings of a family. A business which is at risk is usually not transferred to a Family Trust, otherwise the risks connected to that business will follow the business into the Trust, and possibly make the other Assets in the Trust vulnerable.

Share of a company and your Trust

It should not prevent you from selling the majority of your share holding to your Trust however. The owner of the business usually sells 99% of his or her shares and retains 1%. Through that 1% he or she is then still a shareholder. 99% of the profits generated by the business can be transferred to the Family Trust. This method does not transfer the risks to the trust. For example: Imagine having a share holding in the local airport business. If that business goes broke  you will lose the value of your shares, but you will not be liable for the losses of that firm just because you own shares in it.

It is essential that your share holding is valued by your accountant to establish for what value the shares can be transferred to your Trust. There are various methods to ascertain that value, and it is important to establish a low value rather than a high one. This may sound strange, but remember you are not trying to sell it to an interested outsider, but instead to your Trust. Your Trustees will be holding that Asset for you, and they will owe you a Debt amounting to the value of the share holding. If claims are made against you personally, and if they succeed, your Creditors can usually pursue their actions against all your assets. The debt that has resulted from the transfer of your share holding, or what remains of it  from the time when you  started a forgiveness of debt procedure, can be called in by the Creditor. That is why it is essential to ascertain the lowest possible value of the share holding, and thus the corresponding value of the debt. Secondly, it is also vital to start with a forgiveness of debt program, that lowers the Debt owing to you each year, at the time of sale of your Assets to your Trust. The above applies to any of your other assets.

In summary: The lowest possible value of the asset to be transferred will correspond with the lowest amount of debt owing to you. It will thus lower your exposure.



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