BulletProof Asset Protection and Ed BURTON

[Mry]

Mry, in a DT you can really only carry forward the losses until there is a profit to offset them against, thats why there is so much interest in HDT's - to try and gain a tax advantage. I'm not the person to detail the how's and why's of HDT 's, there are plenty of experts around here for that - I'm mainly interested in the asset protection systems.

I know the facts of the case with DTs and HDTs, but what I am asking is that if
*DTs can't distribute losses but are great for asset protection purposes; and
*HDTs allow you to claim losses but create an asset and a loan which attract attention,
then what do you do? Do you have an alternative other than the above or do you have to make a choice?

Obviously the DT will give you Asset Protection, but the loss of the negative gearing benefits seems a heavy cost to bear unless you can offset that income with other income in another entity (eg the income from the HDT goes down into a DT that is also in receipt of significant investment / business income and that also has a loan that was used to purchase the units in the HDT).

 

[wbthom]

I know the facts of the case with DTs and HDTs, but what I am asking is that if
*DTs can't distribute losses but are great for asset protection purposes; and
*HDTs allow you to claim losses but create an asset and a loan which attract attention,
then what do you do? Do you have an alternative other than the above or do you have to make a choice?

Obviously the DT will give you Asset Protection, but the loss of the negative gearing benefits seems a heavy cost to bear unless you can offset that income with other income in another entity (eg the income from the HDT goes down into a DT that is also in receipt of significant investment / business income and that also has a loan that was used to purchase the units in the HDT).

Mry, you need to make a concious choice. I believe most of us buy negative geared property with the intention that some day we will make money from it. The losses in a DT are temporary and eventually when you make profit from that property (or another source of trust income) then you use up the losses - they are not lost. So it is more a form of delayed gratification to get the benefit of the asset protection. Those using HDT's want the value of their dollar back quicker, and are willing to bear with a more complex structure to achieve it. Not good or bad, just different choices - people should make these sort of choices based on the same criteria we all use for investing - how big are the risks, what do I feel comfortable with and past experiences.

I was speaking to an experienced stock broker the other day who was accepting huge risks with lots of cash and property in his own name. His wife is a medical specialist who is also highly at risk. He thought little of asset protection until the day someone threatened to sue him. That lawsuit didn't eventuate but this guys mindset changed overnight. Perspective is everything in this sort of descision - the temporay loss of negative gearing benefits might be of concern to some people but others are more worried that they might lose everything.

Bill

 

[tony100]

Hi Bill,

Thanks for the reply.

Tony

 

[coastymike]

What is going to happen however when the person finds out they cant get the taxation benefits from negative gearing. This could mean the difference between affording of the property and not being able to afford it. Can you imagine explaning to a client that if they have a $10k per annum loss then it is going to be trapped in the trust. Over 5 years that will be a loss of $50K trapped in the trust. The tax effect of that is $25K to the highest income earner.

And how are they going to get the extra money into the trust. If the property is negatively geared they are going to have to gift funds to the trust every interest repayment because it isnt going to have enough funds. So every 2 weeks they are going to need to do a trust resolution declaring the gift and how much. I can imagine most people forgetting to do this and then rocking up at year end and then having to do 26 trust resolutions (if they are paying fortnightly) and then hitting them with a bill for that work.

They then rock up and say ohh I have a friend who has a form 1515 that they complete and they told me that I could get more cash in the hand to help afford this property. You see its killing me at the moment and the wife's hours have been reduced and we worked out last night that an extra $50 per week will basically help us through. Its going to be tough but we have worked out we can do it. Then the accountant telling them oh sorry the losses are trapped in the trust so a form 1515 is not applicable to you. Guess you're going to have to just keep gifting the funds to the trust and wait for some profits to absorb the losses. But how long will that take the client asks. Well the way I see it you have $50K in 5 years and are making a $3 profit after year 5, $5k profit after year 6, etc etc...hmmm probably in about 15 years you should be in positive territory. I can imagine the client either a) seeking legal advice to see if he can sue you for professional negligence, b) sell the property and possibly make a loss or c) organise for a repayment for you great advice as you leave work one night and a baseball bat comes crashing through your skull. Hey its a violent society these days.

Ok a bit of a dramatic story but its the reality. I know a lot of people who rely on the taxation benefits of negative gearing to service the debt. There is no way they could wait for 10-15 years for the losses to be absorbed. Its also poor planning as those funds would be better off either being used to reduce the loan to the bank to purchase the special income units and take advantage of the refinancing principle or use those funds for other investments to help build their wealth.

 

[Mry]

I agree with CoastyMike.

I usually draw a diagram when people come in to ask me about Asset Protection. It goes like this.

Full---------------------------------Accounting Fee,
Asset --------------------------------Cash and Tax
Protection ----------------------------------Savings
>======================================<

It lets the client know that what they are doing will cost money, either upfront and as an ongoing affair. I'd say that putting the IP in a DT would be at the far left of the scale but not one of clients would do it if it involved the loss of tax benefits. If anyone could combine the DT's asset protection with negative gearing benefits for salary & wage earners, I'd love to hear it.

 

[NormH]

Hi, Norman again,

I come back to the whole point of my original post when I made a couple of observations about the discussion and some points possibly not considered.

And it is, an HDT is a DT if the trustee decides to not sell "special units" also therefore the protection afforded is the same.

If circumstances change and the trust needs to raise funds, then it can turn to you rather than a bank. The trust, using T&C's, can limit slight exposure risk to almost nil. This way you get a double whammy, the growth in a trust that offers protection and tax benefits AND a personal tax deduction that you could not previously get.

Or you set up a DT and although you carry the losses forward, you lose the ability to get some personal tax offsets. The other side to the story is, although the losses are carried forward, but what would you prefer?????
$10,000 today in todays dollars or $10,000 in 10 years time in todays dollars or about $5,000 in real terms.

The HDT just gives you the flexibility to cover possibilities, just like when you are writing the deed, the beneficiaries are that loosely defined it can almost be anyone. Just cos one of those people is a serial gambler and loses heaps doesn't affect the trust or family fortune as the trustee uses their discretion and doesn't give any funds to that person.

The flexibility is the key to it all, and you are not, just by having an HDT, exposing the assets any more than a DT.

Anyway it would really be a nice point of further discussion to explore assets being held by a trust (say unit) within the HDT. You then could say fund the purchase yourself and be given "special units" from the holding trust and the monies, after costs (management, running expenses etc) come to you. This would leave the HDT that owns the holding trust as the ultimate owner. I am not sure but it is a thought just to move the conversation on from the religious HDT vis DT to try and further explore other possibilities. This would also give you the "third party removed" possibility to transfer to SMSF if you so wish in future years.??????? yes/no either way this a productive and good sensible conversation.

thanks

Norman

 

[coastymike]

There is another two major benefits of holding property in a unit trust with all the units held by the hybrid trust. I know that this is making the structure slightly more complex but perservere with me.

The first is that holding a residential property in a standard DT or even a hybrid trust means that it cannot be transferred to a SMSF at a later stage. Read the SIS act re Part 8 associates. However if the property is owned by a unit trust and all the units are issued to the hybrid trust this can be transferred to a SMSF. It basically getting around what Chris Batten calls "poison property". I love that term.

Secondly there can be significant stamp duties savings with the above structure. If units are transferred to another unit trust and the value of the real property in the trust is under $2M then you are not caught by the land rich tax provisions that relate to trusts and very minimal stamp duty on transfer of the assets. Something to think about. I dont know how long the OSR in NSW will let this continue but it is certainly currently an opportunity.

 

[wbthom]

The last few posts by Mike & Norman have been an education in clearly showing the benefits of a well written HDT deed for getting the tax advantages (with minimal asset protection loss) for investors that are negatively geared. I don't in the least challenge this scenario, and if every tax advisor and accountant around had such knowledge it would be fantastic for negatively geared investors

By the way Mike, if I and my advisory team were ever silly enough to not point out the obvious cashflow disadvantages of a DT holding negatively geared property then we would deserve a lawsuit

My personal viewpoint on protection structures comes from a different angle - I very rarely work on asset protection structures with people who are starting out investing - if I did, my advisory team would likely use HDT structures in many cases. Most people come to me when they already have substantial assets and cashflow at risk and they are not usually as sophisticated as many of the forum members. A lot wouldn't handle the complexity of a sophisticated HDT at all well. They just want a structure that protects what they already have in most cases or they run a profit generating business and want to distribute the income to family (& often non-family) beneficiaries. I tend to find that strong and simple works best when dealing with these people.

This HDT discussion has been truly fascinating- especially when the original post was only about Ed Burton and his asset protection strategies!

Keep it up guys - I hope we all learn a lot

Bill

 

[NormH]

Bill hi, yep you are correct expanding the conversation to where is it now makes for more complexity, it is an area that I have not yet fully explored and how it might be of benefit due to, I suspect the extra cost of managing it all. I do see some benefits however, ie limiting the exposure to say only several properties, instead of the whole kit and kaboodal etc but that is getting more up market and you would need to consider/argue the pro/cons of the cost-complexity vis exposure-protection-simplicity.

However I still think you are able to keep your structure as simple as a DT simply by not issuing any "special units" cos it is effectively a DT under those conditions.

It does however give the trustee the flexibility if in the future they become a little more adventurous, start using their structure and working it without having to "have another trust" and the added cost. They can then if they wish and start to consider, what we have just discussed and introduce more sophistication, all from the one HDT. where as further growth with a plain-old DT would require another trust to be set up, adding cost and complexity.

Anyway, yes I see you side, not interested in the tax and only the protection, but from my perspective, a user/investor who in my early days could have been a client of yours but wasn't, yes I wanted the protection and wish some of my earlier accountants had encouraged it rather than discouraged me by saying "you are not in high risk job so you don't need trust". I now have 4 properties outside of HDT in my name and too expensive to put into trust with others. If I had been encouraged to go the protection path with flexibility in the past I would now not be in this situation.

I didn't get here over night it has taken me 14 years, slow process, so getting it correct a long time ago would have saved me heaps of money to now do the right thing or sleep better at night knowing my investments are protected.

cheers

Norman

 

[NormH]

The last few posts by Mike & Norman have been an education in clearly showing the benefits of a well written HDT deed for getting the tax advantages (with minimal asset protection loss) for investors that are negatively geared. I don't in the least challenge this scenario, and if every tax advisor and accountant around had such knowledge it would be fantastic for negatively geared investors

<big snip in the interests of brevity>

Keep it up guys - I hope we all learn a lot

Bill

Bill hi again, just a quick point here, my HDT is actually positive and that is nice thankyou. I have properties in the trust that are owned outright, I can use that for security etc for further borrowings. But I am paying 48% personal tax, it is better for me to borrow the money (HDT offers up the security) and then I am able to artificially negatively gear myself. If I lose my job and find myself in a postion of no income and thus no negative gearing benefits. I can just have the trust borrow money, redeem the "special units" I then repay the bank and the deduction has been shifted from me and no benefit over to the trust where I can get full benefit. The key is flexibility and that to me is the reason why HDT's better than DT's as circumstances change and the HDT, without increased exposure, gives you that "future proofing". Yes slight decrease in protection if/when "special units" are issued but that is limited by the T&C's but you don't have to issue "special units" ever if you don't wish too so no extra risk. But nice to know you can

cheers

Norman

 

[austini]

Hi Gang,

I agree very much with Norm. If you are going to go to the expense of setting up a trust structure it appears to be a no-brainer to me that you would opt for the most flexible structure. There is very little cost difference between setting up and running a DT Vs a HDT. It is my understanding that if no units are on issue then the HDT will function in every way the same as a standard DT. No extra running costs or resolutions etc. However the great thing about a HDT is that should one want to negative gear later on (maybe not in business anymore but return to normal salaried job) then the HDT gives you the flexibility to do so. In addition there are other powerful advantages not offered by a DT.

I only wish I had known about HDT's when we had our first trust setup which is a DT. Mike made it very clear just how big the IP losses can be and one may be waiting a very, very long time for eventual positive cashflow to cover these losses not to mention the potentially huge strain on cashflow along the way due to inability to claim these losses through negative gearing. It pays to remember that depreciation and bldg-writeoff expenses in addition to interest and other general expenses will be trapped in the DT. For example, a relatively new quality property can have very significant depn and Bldg WO expenses particuarly in the earlier years. And these added on top of the other expenses can mean a huge loss in tax savings if they are locked up in the standard DT for a very long time.

Even if I thought at this stage of our life we were only going to buy CF+ investments from now on I would opt everytime for the HDT. Because one never knows what the future might hold and hence the added flexibility is extremely important should things change.

As for not recommending a HDT to a less sofisticated investors well I would still think that a HDT would be a wiser option. If the investor doesn't want to use the additional flexibility of a HDT then they don't have to. What they will have is effectively a DT with the same running cost and ease of operation. But what if this investor like many of us who have found our way here starts to take more interest in controlling their wealth creation only to find that they are saddled with a less flexible structure such as the DT. I know this from my own personal experience and hence then had to go to the additional cost of setting up a second trust but this time I made sure it was a HDT. Had I setup a HDT from the start the requirement to setup a second trust would have not been required till much further in the future if at all. So now we have to meet the running costs of having two trusts whereas had it been a HDT from the start we would only have the one trust at this stage.

I am not qualified to advise on this but thought I would mention my own personal experience of having unfortunately started with a DT rather than a HDT.

Cheers - Gordon

 

[NigelW]

This has been an interesting and apparently popular thread. While there have been some useful observations and comments, particularly from Mike, I think it demonstrates a couple of things.

1) It's true that not all trust deeds are created equal. Also beware of labels and make sure you're not talking at cross purposes. the term "Family trust" is generally used to refer to a discretionary trust with Mum and Dad, their immediate relatives and entities controlled by them as the class of potential beneficiaries.

2) It's hard for a lay person to identify whether their trust does what they want it to. Obviously it's impossible to do that if you just buy a product "off the shelf" without reading it first. Which leads to:

3) Good PERSONAL advice is necessary to ensure your structure will accomodate your plans.

4) When arguing for asset protection people tend to focus on anecdotal evidence rather than looking at the law and the facts. But I guess sensationalism sells trusts as well as structures it seems...

5) There is a lot of "mythconceptions" about:
(a) the so-called benefits of appearing like a "penniless bum",
(b) the amount of information available from the various search facilities available and
(c) generally the litigation process.

Relatively speaking, it is quite cheap to draft, file and serve a claim. Once you've been served it's GAME ON! If you don't appear and defend (or seek to strike out the claim on a preliminary basis) you'll have default judgment awarded against you and it's THEN that the plaintiff's lawyers will shake the tree and see what falls out. If you don't pay the award of damages made then you'll be bankrupted and subject to external administration of your assets by force of law. So this concept about making yourself "invisible" or "unpalatable" is, with respect, pure rubbish IMHO. Appearances are deceiving. What counts is who actually owns what, how long ago did they get it, did they get it at a market price and do you have good insurance.

6) Why would any publically available search disclose ownership of units in a hybrid trust? The issue of such units is purely a private matter between you and the trustee of the trust (your corporate alter ego). How will a litigant know what flavour your trust is anyway? One of the advantages of trusts is that their terms need not be disclosed in any public way nor does the existence of a trust show up on the land title register, merely the corporate trustee details. You can search for all property a particular person or company owns, whether a person has been or is bankrupt and whether a company has had any winding up applications lodged etc, whether a person or company has been or is being sued via court searches and what companies a person is a director of...but that's about it short of hiring private investigators.

7) Lawsuits are definitely all about money. But what determines whether they proceed is, amongst many other things, the depth of the pockets of the plaintiff right now, not some chance that the defendant appears to have deep pockets and will still have them in a few years' time when you finally get to court (particularly after paying his own lawyers) ). The so-called no-win, no fee crowd only chase insurance companies...

8) Back channel resources are not as prevalent as you think and could severely bite the hand that seeks to use them

9) People seem to misunderstand debt and equity and who does the borrowing in the use of a HDT. search the forum for some explanations from NickM and others.

10) Land rich stamp duty is an issue for unit trusts...wouldn't be too hard to get bitten in Sydney...

Cheers
Nigel.

 

[wbthom]

Hi Guys,

Powerful stuff on HDT's - I suspect as advisors, lenders, solicitors, accountants etc become more and more knowledgeable in this area HDT's will become more commonly used in place of DT's for all the reasons that mike, norman, gordon and nigel have pointed out.

A quick chat with some of the legal and financial team I work with on the HDT issue brought up a recurring comment: When HDT packages have been suggested to clients in the past they have:

1. struggled with the concepts
2. some of their accountants have put them in the too hard basket
3. they have had a lot of problems with lender acceptance.

I believe most of this will change (or is already changing) with time and better education, and HDT's will be better used to get that balance between tax benefit and asset safety that we all seek as investors. This will be difficult though till average financial advisors/accountants actively recommend them.

Unfortunately though this thread is interesting I find I'm not enjoying it tonight - I need to go and have a good double malt. Had to go to the funeral of a good mate today, who died of a nasty aggressive form of cancer, and you quickly get reminded of the only things that really matter in life - family and friends.

Bill

 

[ggumpshots]

Hi,

I think you confusing losses, with imputation credits. 5k is the maximum in imputation credits you can use, unless you make a Family Trust election.

Cheers
mono

Thanks I was confused 5k on Imp credits.
However why/when/what is a family trust election?

 

[NormH]

Hi Guys,

Powerful stuff on HDT's - I suspect as advisors, lenders, solicitors, accountants etc become more and more knowledgeable in this area HDT's will become more commonly used in place of DT's for all the reasons that mike, norman, gordon and nigel have pointed out.

A quick chat with some of the legal and financial team I work with on the HDT issue brought up a recurring comment: When HDT packages have been suggested to clients in the past they have:

1. struggled with the concepts
2. some of their accountants have put them in the too hard basket
3. they have had a lot of problems with lender acceptance.

I believe most of this will change (or is already changing) with time and better education, and HDT's will be better used to get that balance between tax benefit and asset safety that we all seek as investors. This will be difficult though till average financial advisors/accountants actively recommend them.

Unfortunately though this thread is interesting I find I'm not enjoying it tonight - I need to go and have a good double malt. Had to go to the funeral of a good mate today, who died of a nasty aggressive form of cancer, and you quickly get reminded of the only things that really matter in life - family and friends.

Bill

Bill sorry about your friend and I extend my condolances to you and your friends family. Yes as we get older, what is important tends to change and the invaluable things in life are those around us.

I agree with you about the 'level of understanding' and it is discussions like this that help. Hence the value of this forum and this medium where many people can discuss points and share information/knowledge.
There are a number of institutes that appear to have problems with the HDT but I think it comes down more to who you are talking to within the institution and how much they are willing to listen/learn or ask the correct question within their organisation.

All the best, thanks for the conversation and hope all is well

cheers

Norman

 

[Terryw]

Nigel

I like your posts! You explain things well, and in easy to understand language .

I am actually suing a person at the moment (over a fair sized unpaid debt) so it may be relevant to outline what I have done so far.

Firstly a “Statement of Claim” was submitted to the local court, and served on the Defendant. Cost about $150. If she did not respond, I would have been ordered a default judgement against her.

But she did respond, and lodged a “grounds for defence”, saying why she does not owe me money. (She is not using a lawyer, and has stuffed this up, admitting she does owe me money!)

That means that I have to go to court and argue my case (this could take another 6 months).

In the mean time, I have started researching her assets. I did real estate searches on her name (using a real estate database that my office subscribes to) and I have found about 8 properties in her name. I have addresses, title details, amount purchased for and dates of purchase (all publically available).

I could then go to the land titles office (or even do it online) and request copies of the certificate of title. This will have listed any mortgages over this property, transfer details etc.

With this information, I could now request a copy of the mortgage over this property to ascertain what the debt is on this property. I can then look at realestate.com.au and get a rough idea of the value of a few of her properties (some are actually listed for sale!) and then work out how much equity is available.

This will give me an idea on how far it is worth pursuing and if I should accept her out of court settlement.

I have also gathered a lot of information about this woman and have subpoenaed her accountant, solicitor, financial planner and several banks which I know about. I am not sure if this will be successful, she may be able to successfully oppose it, but it will certainly help my cause and shock her. Cost about $50 per subpoena.

I haven’t even looked for property in other states, or done company searches etc yet. I could search on her name, see if she is a director or shareholder of any company, then see if this company owns any property etc.

If it goes to court and I get a judgement against her (a very high chance in my favor), then I can get tough and do several things including:
- Sending the sheriff around to her house and seizing goods which will be auctioned to pay back debt.
- Apply to garnish her wages or just to take money out of her bank account (I have to know the details)
- Get a court order for her to attend court and answer questions about her assets and liabilities (Examination summons)
- Get a writ against land, i.e. force the sale of any/some/all property that she owns (this could be costly)
- Apply to have her bankrupted. I believe she will then have 21 days to pay the debt, or be forced into bankruptcy (this could cost me a few thousand)
- If she goes into bankruptcy, the trustee may be able to overturn any recent sales of property or payments of money (in last 6 months I believe).

I guess she could own property as trustee for a trust, and this would not show up initially. This would probably only come out later when she is examined and/or bankrupted. I am fairly sure she doesn’t know what a trust is, however.

All my legal costs (nil so far) and court filing costs etc can be added to her debt, plus interest at around 9% pa.

It is very easy to sue someone, surprisingly easy in fact!

 

[Mry]

More problems with valuing Income units

Another thing about HDTs I might just throw out there is about the redemption of the income units.

Now if I make an error here, let me know.

I imagine that with a HDT that a lender making funds available to purchase the units (and thus the house) will want security over something in the event the loan is not repaid. Namely the house. So if someone was getting sued, before the judgment is made in court the HDT obtains a loan in its own name for the amount of the loan in the individual's name and then resumes the income units and the individual pays out the loan. This would be to prevent the bank becoming a creditor in the event the individual becomes bankrupt who has a right to seize the property in order to pay out the loan.

The thing I have a problem with is that under bankruptancy law (and I am not a lawyer which is why I am asking) is that some transactions between related parties that are not made at market value can be reversed within a period of time. Can the person who wins judgment against the individual attempt to state that the resumption of the units was not done at market value and the units were undervalued and that the HDT should pay more across to the individual which it can then seize to pay against the judgment?

I know that some mention has been made of the income units not being subject to such since they get resumed, but they are an asset, they have a value and it is an investment in a related party.

If the units were overvalued and the individual was overpaid for them, that shouldn't be a problem. I don't think a creditor will be chasing the bank to get back some of the funds used to pay them off. They have some pretty hotshot lawyers.

 

[NormH]

Mry hi,
"special units" is what you will find them referred to in your trust deed. That is fairly much all that is said about them, all of maybe 1 paragraph .

Now when the Trustee goes to the market to raise some capital it is going to do so by issuing "x amount of special units" now these units will have conditions applied to them. i.e. entitled only to the income after all expenses from property at 11 some street in town. the trustee may redeem these units at the descretion of the trustee. the issue price of $1 is not guaranteed and the trustee can redeem the units for any value deemed appropriate but that value will never exceed the issue price. The trustee can never unless at it own descretion redeem more than 200 units per year. And so the conditions could go on.

So no one in their right mind would even purchase these units, except you .

All of this is at arms length as you are an individual call Wry, the trust, SomeName_Trust, is managed by a trustee called A_Trustee Company Pty.Ltd you are not related, they are different entities.

Anyway the reason you do all of this is to enable Wry to get a tax deduction at a personal level on the borrowings of the trust. The ATO requires you to invest your money for the benefit of earning an income before you can claim the borrowings as a tax deduction. (you just did you bought some "special units - we will call them income units(only cos it is a self describing name)" the fact that, although a number of conditions on them, it entitles you to the income from that property and for that isolated instance you have negated the "descretionary bit" that the trustee of the descretionary trust has. Thus you have invested for income and thus you can claim costs as a deduction.

However as a good trustee, I am going to try and maximise the value of the trust and will ensure that every possible claim I can squeeze comes out of "income" of that property before disbursments. Thus I could envisage almost no income for many a long year.

So now here you are headed for bankruptcy, you hold say 150,000 of these special units, that with all their terms and conditions no one else would have every purchased, except you the eternal optomist. These special units have returned to you as income over the last 5 years a total of say $5,000. Well that works out at less than 1 cent per unit per year of income for every $1 unit. This fantastic investment is returning less than 1%.
So if I was a creditor and you went and sold these and got 1 cent per unit and I got that money now, I would take it and run.

That is if you were nice enough to do that for me, otherwise I would just write those 'assets' you hold off as worthless.

Wouldn't you???


I am not an accountant, I am not a lawyer but that is the way I see it working if things went really bad.

cheers

Norman

 

[Mry]

So now here you are headed for bankruptcy, you hold say 150,000 of these special units, that with all their terms and conditions no one else would have every purchased, except you the eternal optomist. These special units have returned to you as income over the last 5 years a total of say $5,000. Well that works out at less than 1 cent per unit per year of income for every $1 unit. This fantastic investment is returning less than 1%.
So if I was a creditor and you went and sold these and got 1 cent per unit and I got that money now, I would take it and run.

That is if you were nice enough to do that for me, otherwise I would just write those 'assets' you hold off as worthless.

Wouldn't you???

If I was a lawyer for the suing party, I would go into court and say

FACT 1 - The bankrupt paid $300,000 for these units.
FACT 2 - The rental income from this property has increased in yield by 30% since it was purchased. Thus the value of the units has increased in value over and above $300,000.
FACT 3 - The units were redeemed for $100,000.
FACT 4 - The market value is difficult to determine so instead of looking at the market, we will look at what the bankrupt actually paid instead which is a more reliable guide than some hypothetical calculation.
CONCLUSION - The units are worth more than $300,000 but we will settle for $200,000 from the trust anyway being the difference between the purchase and redemption price.

Sounds silly, but thats how lawyers are.

I also believe a related party is defined as one you have control over. If you are a beneficiary of the trust according to the deed, the appointor and the director and shareholder of the trustee company, that is sufficient to show you exert control and could be defined to be a related party. You would have to show how the deed restricted your ability to pay certain values for certain assets.

 

[NormH]

<big snip>
Sounds silly, but thats how lawyers are.

I also believe a related party is defined as one you have control over. If you are a beneficiary of the trust according to the deed, the appointor and the director and shareholder of the trustee company, that is sufficient to show you exert control and could be defined to be a related party. You would have to show how the deed restricted your ability to pay certain values for certain assets.

hmm not quite. well that is what I think anyway

following your logic that means the unit price of a property trust on the stock exchange can never go down. Nor can one ever go broke. They do and they do.

Now the family trust we will call HDT. if the trust we set up and run by you for you and you referred to the assets as yours then quite likely the whole thing could be pulled down in court as a "sham"

A trust needs to be run by the trustee for the beneficiaries, all the beneficiaries. The assets in a trust are not yours they are assets held in trust for all the beneficiaries. If you wish to really tin plate your bum, then you could have say your wife as the director of the trustee company, and either you or her leave the house for trustee meetings. But generally if you hold meetings, document your actions and decisions and can lay a paper trail as to things then it will be extremely difficult for the taxman or a court to pull it down.
I for example am very conscious of not referring to trust assets as mine, they are not, and I don't wish to leave people with that impression. So when I am in a group talking about things, I am not big noting myself or whatever I am merely discussing the reality of things as they are in the 3rd party. Just to make sure I don't treat/operate only to my benefit and thus leave a chink in the armour.
Now I do know that under some circumstances the "family court" can take into account some trust assets but that is not what we are talking about here.

Cheers

Norman.

PS note all previous statements re lawyer accountant etc are still true.