IP structure 4 Asset protection

[WallyB]

Happy new year all- been reviewing some PI mags over the break and came across this strategy from Rob Balanda:

You enter into a contract to leave the IP in your will to a discretionary bloodline trust (only beneficiaries are members of your family). You also enter into an option agreement with that trust giving it the right to aquire the property from you if you don't eventually leave it to them in your will (with a mortgage as security) for $1. Your will then leaves that asset to the discretionary bloodline trust to complete the transaction

Theory being that there is no GCT, GST or stamp payable and it's a potential ?? barrier to litigants

Any thoughts on this or has anyone used this strategy- have an appt with solicitor in mid-January so any input would be great

 

[tubs]

Now THAT is really confusing. I think that your intention is to provide asset protection while you're alive with the contract, but I could be wrong.

Here are my questions for you to work out:
1.

You enter into a contract to leave the IP in your will to a discretionary bloodline trust (only beneficiaries are members of your family).

Who do you enter into the contract with? You sign it, but who signs the other side of the contract? The trustee? If this stopped a litigant getting their hands on it, it could also stop you from selling your house if you chose to if the trustee decided against it (although you would be OK if you were the appointer of the trust as you could get rid of the trustee and put yourself in).

I'm not sure if signing a contract to pledge your house to somebody else is a valid way out of getting sued. Your estate doesnt form until you die, and in theory this could stop anyone you owed money to (including your mortgage) from getting it from your estate as long as your house was your only asset. That's why I think this is very shaky.

2.

You also enter into an option agreement with that trust giving it the right to aquire the property from you if you don't eventually leave it to them in your will (with a mortgage as security) for $1.

How do you form this option. Isnt the expiry date on the option dependant on YOUR 'expiry'? I am guessing you dont have a date in mind for this yet.
$1 is not fair market value for your house, so would probably get rejected on this alone.
Isnt the contract (above) doing this already? This contract would be what would enforce you to do this (if it works). And besides, once you're dead, you aren't going to be able to sign the house over so this would become a matter for the estate to handle, which then would become very messy.

3.

Theory being that there is no GCT, GST or stamp payable and it's a potential ?? barrier to litigants

Wouldnt you just use a testamentary trust instead? And there are other ways to protect the equity in your PPOR, such as borrowing against it and gifting to a trust, double stamping the mortgage etc.

 

[WallyB]

Now THAT is really confusing. I think that your intention is to provide asset protection while you're alive with the contract, but I could be wrong.

Yes Tubs- exactly what I'm after

I'm not sure if signing a contract to pledge your house to somebody else is a valid way out of getting sued. Your estate doesnt form until you die, and in theory this could stop anyone you owed money to (including your mortgage) from getting it from your estate as long as your house was your only asset. That's why I think this is very shaky.

Good point

You also enter into an option agreement with that trust giving it the right to aquire the property from you if you don't eventually leave it to them in your will (with a mortgage as security) for $1.

How do you form this option. Isnt the expiry date on the option dependant on YOUR 'expiry'? I am guessing you dont have a date in mind for this yet.
$1 is not fair market value for your house, so would probably get rejected on this alone.
Isnt the contract (above) doing this already? This contract would be what would enforce you to do this (if it works). And besides, once you're dead, you aren't going to be able to sign the house over so this would become a matter for the estate to handle, which then would become very messy.

Was assuming that the $1 nominal amt was fine as a bequethment in an estate is usually for $0 payment

Wouldnt you just use a testamentary trust instead? And there are other ways to protect the equity in your PPOR, such as borrowing against it and gifting to a trust, double stamping the mortgage etc.

Will kick these options around- thanks Tubs