We have a business and try and keep the business assets separate from the business income as the income is shared with family members. We have been advised to set up two trusts, one for the assets of the business and one to run the business. Is this the right option or are there others........... thank you?
There are always options, but there is nothing necessarily wrong with this one. We have at times used a company to own the equipment, similar to owning Intellectual Property.
Leasing the equipment from one entity to another allows for the asset protection of that equipment from the day-to-day business activities. If the family members you mentioned above are investors in the business, but not funding the equipment, then this is potentially worthwhile.
Assuming the advice you received was from either your accountant or solicitor/lawyer, then I'd take that advice as they will be familiar with your business and situation. If it was 'advice' on site/down the local, then please take the time to speak to the experts that you have in your team (accountant & lawyer). If you are not certain about the advice, seek out a second opinion (I'd again suggest the other half mention before). The big differences :
1. The accountant and lawyer are professionals, covered by insurance and trained to give you the advice appropriate to your situation - the others speak from their experience, based on their circumstances.
2. The accountant and lawyer can charge you for the advice - because they are well worth it to make sure it is right first time around. Fixing mistakes 6/12/18 months later can cost significantly more than the cost to get it right at the start.
Todd is right on the money!!!!
There are no end of sad stories about people who got their business structuring advice from a well-intentioned freind who doesnt know a discretionary trust from Adam.
in terms of your specific question, as a strategy to isolate business assets from business risk, the concept of a different entity holding the P&E and leasing the gear to the trading entity, this works. It will go a long way to helping you keep the equipment if your business fails for any reason.
But its an extra entity, an extra set of books and an extra tax return......all of which cost money to manage. And there needs to be a benefit to you of going to all this trouble and expense....what you need to do is a RISK ASSESSMENT on your business:
how this works is like this:
likelihood of bad shit happening times level of pain equals relative risk level:
high likelihood (say 9/10) times send you broke amount of paind (say 9/10) equals 81/100......so cover our arse!!!!!
low likelihood (say 1/10) times cost you bugger all if it happens equals 1/100.....so dont lose any sleep over it.
for example, if you are in the building game, my advice is DO IT!!!! the building industry is rife with shonky fly by nighters who will be more than happy to sign you up to a subcontracting gig, and leave you high and dry in the dead of night owing many hundreds of thousands of dollars........ the risk is high and the consequences of things going pear shaped are large.......so protect your assets.
or......lets say you run a lawn mowing business.....your clients are a couple of hundred pensioners each of which pays you $50/week......if one of them skips town owing you a couple of hundred dollars, its not gonna break you, so dont get too excited about asset protection.
And as Todd has advised.......the best protection you can probably get right now is GOOD ADVICE SPECIFIC TO YOUR SITUATION.