Asset Protection for singles
- Thread starter ashalim
- Start date
Hi ashlim,
Is there a need for a trust structure so early in your investing career? Do you have a job etc where there's a possibility you may get sued?
I've found that they're not really useful for us at present & can be costly to set up.
You can also search on here for threads about trusts that will shed some light on this.
Regards, M&M
Is there a need for a trust structure so early in your investing career? Do you have a job etc where there's a possibility you may get sued?
I've found that they're not really useful for us at present & can be costly to set up.
You can also search on here for threads about trusts that will shed some light on this.
Regards, M&M
The appointor has the power to replace the trustee - I would suggest if you are going to put any assets into a trust that only you should be the appointor!
>Sorry, not all that familiar with trust structures.
I also suggest that you do some further reading and research on the matter. When I first looked at them I read a book on trusts by Nick Renton and it was quite good. You can probably find lots of material on them for free on the internet as well.
Regards,
Jason
You need to be careful in planning your asset protection strategy from the beginning. You cannot safely implement things after you have the assets.
As for the role of appointor, it probably shouldn't be yourself alone. You need to control the role of the appointor, but don't make it look like you are the alter ego of the trust. There is the case of Richstar, which was brought by ASIC against a promoter of an investment company. They wanted to freeze the assets of the discretionary trust of one of the directors of the group. ASIC's argument was that the person was the appointor and trustee (or director of the trustee) and therefore the trust property was his property as defined under the corporations act, s9.
French CJ said:
'property' as defined under s9 includes 'contingent interests'.
This case was a bit unique and there have been cases since where this was not followed, but you never know and should take some precautions just in case.
So what do you do? Maybe have additional appointors (trustworthy ones), have a company as appointor (making sure you control the company) and/or have others involved in the trustee and distribute to others not just yourself.
As for the role of appointor, it probably shouldn't be yourself alone. You need to control the role of the appointor, but don't make it look like you are the alter ego of the trust. There is the case of Richstar, which was brought by ASIC against a promoter of an investment company. They wanted to freeze the assets of the discretionary trust of one of the directors of the group. ASIC's argument was that the person was the appointor and trustee (or director of the trustee) and therefore the trust property was his property as defined under the corporations act, s9.
French CJ said:
'property' as defined under s9 includes 'contingent interests'.
This case was a bit unique and there have been cases since where this was not followed, but you never know and should take some precautions just in case.
So what do you do? Maybe have additional appointors (trustworthy ones), have a company as appointor (making sure you control the company) and/or have others involved in the trustee and distribute to others not just yourself.
Hi M&M,
Yeh, not going to implement it straight away. I have 1 negatively geared IP and working on another negatively geared IP. So don't really need it at the moment, it's for when i move to purchasing positive cashflow properties
I'm still researching all these things. From what I heard, tenants or guests of tenants can sue landlords if they trip and hurt themselves in the property.
Terryw,
Thanks, using a company I control as appointor sounds pretty good. I'll keep researching and probably consult a lawyers/accountants.
Yeh, not going to implement it straight away. I have 1 negatively geared IP and working on another negatively geared IP. So don't really need it at the moment, it's for when i move to purchasing positive cashflow properties
I'm still researching all these things. From what I heard, tenants or guests of tenants can sue landlords if they trip and hurt themselves in the property.
Terryw,
Thanks, using a company I control as appointor sounds pretty good. I'll keep researching and probably consult a lawyers/accountants.
get public liability insurance then.
Don't forget shares of a company are considered property under the bankruptcy act. You wouldn't want the trustee in bankruptcy to get their hands on those shares as they would control the appointor. The would then appoint themselves as trustee and take all the trust assets to satisfy creditors.
Many consider using discretionary trust structures overkill unless you are open to litigation through business dealings (ie. not an employee).
Perhaps French's position was swayed by the fact that the director was involved in fraudulent activity.
Perhaps French's position was swayed by the fact that the director was involved in fraudulent activity.
I would not agree that a discretionary trust is overkill unless someone is high risk. Moving assets later is usually not worth it having regard to CGT and duty. (particularly given that negative gearing is difficult), so putting a structure in place early can save a lot of money down the track.
(also most gifting has little protective effect for five years).
One thing to consider - your objective is not to protect an asset. It is to protect the equity you have in that asset.
Why not set up your Trust with Mum as Appointor and then borrow against all your assets, gift the money to the Trust and then use the money to loan back to you to put in offset accounts. Also useful to effectively have a line of credit available if you need cash in a hurry.
Loan would have to be secured by registered second mortgages.
(also most gifting has little protective effect for five years).
One thing to consider - your objective is not to protect an asset. It is to protect the equity you have in that asset.
Why not set up your Trust with Mum as Appointor and then borrow against all your assets, gift the money to the Trust and then use the money to loan back to you to put in offset accounts. Also useful to effectively have a line of credit available if you need cash in a hurry.
Loan would have to be secured by registered second mortgages.
Does this assume that you can constantly refinance the assets at a decent LVR?
Sounds good, but a few potential problems:
- Mum could lose the pension as the assets of the trust would be treated as her own assets under the centrelink rules - may not apply if mum doesn't need the pension, or you could use a younger relative.
- If you borrow against your assets and then gift to the trust you wouldn't be able to claim the interest on the funds borrowed
- Such a transaction as this may be voidable under the bankruptcy act, s 121 and/or the conveyancing act (nsw) s37A if it was done with the intention to defeat creditors
-If a company is trustee then it could be voidable under the corporations act too, s 588FE or Part 5.7B Div2 in general, ss 588 FA to 588FJ
Nevertheless it may still be a good idea, even though it may be a voidable transaction, as the mere appearance of having nothing may stop law suits before they even happen.
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