wbthom said:There is a second mortgage option idea available but it has not been tested in court yet and I won't discuss it here. PM me if you want to discuss this line further.
Bill
Hi Bill,
Can you talk about this now?
Thanks,
James.
Follow along with the video below to see how to install our site as a web app on your home screen.
Note: This feature may not be available in some browsers.
wbthom said:There is a second mortgage option idea available but it has not been tested in court yet and I won't discuss it here. PM me if you want to discuss this line further.
Bill
quiggles said:The best way to protect assets from attack when they are held in your own name may be to ensure that they are always mortgaged to the hilt (not cross-collateralised) so that your equity remains minimal. You then borrow more than the remaining equity is worth from your company/trust/whatever, secured against your assets and bingo, you have negative net worth.
John Burley used to claim that his net worth was about -$180,000.
agent007 said:Hi Bill,
Can you talk about this now?
Thanks,
James.
Ebbie said:I am very interested in this idea. Is there any way of going into debt to your trust without physically taking the money from the trust? The trust would need a lot of spare cash laying around to lend you the equivalent of the remaining equity.
On the paperwork side, how would the trust document this loan and is there a requirement to pay a reasonable rate of interest back to the trust?
Where would you put the cash borrowed from the trust to keep it safe? Can you simply gift it straight back to the trust?
wbthom said:As Rolf mentions Cross Securitisation is effectively increasing (overstamping) the mortgage on an existing property.
Eg unprotected PPOR value $500K mortgage $200K = exposed equity $300K
Buy new property (Ignore stamp and legals for simplicity) value $300K in a trust (corporate trustee). As well as the lender taking $300K mortgage as security on the property in trust you ask them to take an EXTRA $300K mortgage (stamped and registered) against your PPOR. That means that the lender effectively has $600K security against a $300K lend and your apparent mortgage on your PPOR has increased to $500K.
wbthom said:Advantage: You have an asset protected new property in the trust and when a title search is done your PPOR has no visible equity available - you are protected by appearing to be a "Penniless Bum". You have no stamp duty or capital gains tax problems as would happen if you tried to transfer your PPOR to a trust or another entity. In addition if you "transfer" assets to get away from a lawsuit the court can claw them back in certain circumstances - This law does not apply to cross securitisation.
Disadvantage: Normal lenders are a bit nervous of unusual actions so lenders solicitors have to sign off on these and many of them will say no because it's "easier" - even though the lender has higher security levels! You are also wedded to that particular lender till you discharge the mortgage on the trust property, and even though you do not actually have higher borrowings, the extra apparent mortgage on your PPOR puts other lenders off for future deals.
Ebbie said:If I understand this correctly there is no more actual money borrowed against your PPOR. All you are doing is displaying a higher loan figure on the property title than you have actually borrowed. As in the earlier example the title would say you have a loan for $500K on your PPOR when in fact you only owe $200K?
Beach Bum said:"Asset protection is more to compartmentalise the damage and to stop the growing group of cheats and opportunists around from getting a free go at you." wbthom
-So how is it that these cheats & opportunists can actually get to you? I would assume the judge would dismiss the case.
Any one have any examples?
-Also if you are judged to be negligent, then you are personally liable. Would'nt this put all your assets, shares and controlled entities "on the table" and be available for payout of compesation & fines?
-Trusts do not seem to offer any protection where the family court or the csa is involved. (according to the cases I've read on their site)
-Why do you need a trust to gear up your assets for protection? If the loan = the asset, does it matter what entity holds it?
wbthom said:Yes Ebbie,
From the outside searches will show a mortgage of $500K but as far as the lenders concerned you still only owe the $200K on the property.
Bill
Ebbie said:
I still can't quite get my head around this because I've been to the land titles website and tried my own title search. It says "Mortgage to ANZ...." but apart from the name of the lender there was no mention of the loan amount. How does a creditor know how much you owe on the property and better yet - how do they know how much equity is available?
wbthom said:eg Recent Peakhurst Inn case:
"A thief was trying to rob the Peakhurst Inn Hotel, in Peakhurst N.S.W. and tried to enter via the manager’s flat. The manager caught him and beat him up. The robber then sued the manager for the injuries inflicted upon him and won. The mother of the robber also sued and won, for the “undue mental anguish” she suffered when she saw how beaten up her son was in hospital! Now insurance doesn’t cover this type of thing and the manager didn’t have to pay the damages, the owner of the hotel did, who lives 20 minutes away and was not present at the hotel when the attempted robbery occurred."
Clearly this was a situation where the hotel owner is paying for something he had no control of and and did not directly cause.
wbthom said:Another example: Joseph Combs who was sued because a tenant of his had a party in his investment property, and a friend of his tenant (an underage drinker) drove home drunk and died in a car accident! (Mr Combs wasn’t at the party… and… in fact, didn’t even know the party was happening!)
I believe this ended up getting thrown out of court but even if you win you can lose - the legal fees can seriously hurt you even if you are completely blameless!!
wbthom said:If you have your assets in your own name and are judged to be personally liable then yes, you will have all of your assets vulnerable to pay the judgement. But you don't personally "own" the assets in a discretionary trust you control and so those are isolated and protected. You rightly mention that they are not protected from the actions of the family law court. But assets inside a discretionary trust (especially with a corporate trustee) are still very much better protected than if you hold them in your own name. Asset protection is like another layer of insurance - you might never need it but you could be very grateful some day if you have. In this day and age, if you look like you have very little "personal" wealth, you sleep better at night knowing you are less likely to be a target!
Beach Bum said:If he is personally liable he either pays or declares bankrupt.
If he declares bankruptcy, would the trustee be able to claim on company shares (corporate trustee), assets and assets in a trust controlled by the hotel owner? edit: Or any moneys he loaned any other person, company or trust?
Frivilous cases get thrown out so no protection really needed, once again assets or not your still up for legal fees, or go bankrupt.
Assets of a trust with a corporate trustee, are registered in name of the corporate trustee entity of which the name of the directors is very easy to find.
So if I want to sue Joe Citizen, I find out which companies he's a director of (baycorp) and then see if there are any assets in those names. So you would still "appear" to own assets. Also if the company or the trust owes you money (which you may have lent to it for investments), then it is a personal asset in your name.
"Better protection"? How much better and at what cost? (including fees, tax & CGT considrations)
tubs said:So, you see how the chiropractor was going to have everything taken from him and he didnt even do ANYTHING wrong. He didnt even mistreat the patient.
Beachbum, I know that you think that as long as you act honestly then you dont have anything to worry about. I think you have to act honestly and ethically in your dealings with people, and have faith that people will do the same to you. But dont trust them. This kind of thing can happen to anyone. ............... You only need to protect yourself against the dishonest ones.
Tubs
bonecrusher said:Hi all
Found this thread interesting i have read other threads where investors have not got a trust set up but have a few properties.
Which is the best way to protect yourself without having a trust apart form insurance.
If your properties are worth 1 mill and equity say 300000 you get a LOC for 300000 but dont use it does it show on searches that you owe 1 mil or the balance of the LOC?
cheers
BC
NickM said:If your car is unregistered, has bald tyres, driven by an unlicenced driver or someone over the alcohol legal limit, chances are your insurer will do their damn best to avoid paying out.
If they do not pay out and you own assets in your name, you are exposed.
A little bit of thought when structuring you investments and your loans can go a long way. You can never be 100% safe but you can sure try and minimise your exposure.
NickM