loan to trust DT - how to get finance

D

dee

For the purpose of asset protection
Ive setup a discretionary trust
My lawyer has suggested
setting it up so that the trust borrows the money against equity I have in some IPs

It has a corporate trustee
The lawyer has suggested not to have my name as director, shareholder of the company, and not have it as appointor either
He has suggested my mother be in all those roles, and that there be another document signed by her and undated assigning me to be appointor should I sign it.
That way people cannot do asic searches on my name to find the company

Now the question is about finance
Before I had the trust I was going to borrow in personal name then lend this money to the trust. The lawyer suggested this puts a big chink in asset protection

Now with the trust
whos name do I put if I borrow from the trust with a corporate trustee

director is mum - she signs

I will be an external personal guarantor

Will the banks ask for mum to be a guarantor as well
My lawyer suggested that they should accept me as the only guarantor

If payments cant be made - I dont want the banks going after my mum


thanks all
 
This all seems VERY elaborate and complex. Are you in a situation / job where getting sued is likely? You do realise that by NOT being an appointor of the trust or director of the trustee company, you can lose ANY right to control the trust assets? I realise it'll be your mum, but for example, if she (just as an example) has an accident, gets conned by someone, just decides, for example, that she wants to favour other family members over your own interests, etc. that you have no recourse to do anything. You'll also have to confirm on the trust deed whether appointor powers can be transferred just by authorisation.

Family trusts are usually a fairly transparent and accepted way (more by precedent than anything else) way of protecting assets and streaming income. What risks are you taking that you need to keep it THAT secret?

The bit about when you on-lend to the trust decreasing asset protection is correct in that if you are sued personally, your loan to the trust forms part of your assets. Theoretically you could just 'contribute' the money, but you lose the deductibility of interest.

You do realise that if someone really wanted to investigate it they might find out that you're a guarantor anyway?
Alex
 
Hiya

This will be an interesting struture to get finance for :)

hope ur mum makes a good deal of money, because most lenders will see her as the controller of the asset, and the mortgagor and as such she will have to provide personal guarantees

Not a good structure at all in my voew for a number of reasons.

Properly constructed DT should provide all the protection you need ?

ta
rolf;
 
I am with Rolf

I hope mum doesnt mind taking all the risk and also is on a good salary.

Certainly any lender is going to want yout mother to sign a Guarantee.

Sometime lawyers dont think about what could be the most important part of the operation and that is financing the deal.
 
If you Mums the appointer, you no longer have any control whatsoever over your assets. Your risk is about as low as it can get, because you have no connection with the trust, other than being a (potential) beneficiary.
 
Thanks for all the opinions
Yes Im in a medical profession that has a high chance of being sued

The lawyer asked me what degree of protection do you want
I answered maximum

otherwise the standard option would have me as director, shareholder of the corporate trustee and appointor and benificiary

Me as all roles
The laws for standard trusts are getting eroded over time
Its better than no trust but not that much better

The other option even protects against divorce - heaven forbid

Oh well back to the lawyer with more questions about a standard discretionary trust with me in all roles

Getting finance is certainly more important
 
With THAT much separation between you and the trust, it would almost make sense to just put everything in your mother's name directly? (Not suggesting you do this, but given that your mother will have all powers over the trust, how is that different from if everything is in her name?)
Alex
 
Thanks for the replies everyone
Can you guys suggest who is appointor, director shareholder, and beneficiary
if I am single with no kids

If I am in all roles - lawyers will easily tear it down
I need mum, or someone like sister in some of the roles

What do you guys with normal discretionary trusts do
Id guess- me appointor
me director
shareholder mum
but does that provide me with any asset protection
 
http://www.cpaaustralia.com.au/cps/rde/xchg/SID-3F57FEDF-6A47568F/cpa/hs.xsl/724_22011_ENA_HTML.htm
another one

Some quotes

Don’t control the trustee of a discretionary trust: Jeremiah warns a beneficiary with the power to appoint and remove the trustee has an interest in a trust’s assets, according to the High Court, and is therefore putting their family assets at risk.

Jeremiah says the judgement should provide a clear message to those trust beneficiaries who are looking for asset protection: don’t control the trustee. And he says beneficiaries who do not heed this warning are 'acting irresponsibly through the potential exposure of family assets to risk'.

One way to avoid a Richstar attack on your assets is to distance yourself from control of the assets and from the appointment of trustees. But that can be a catch-22. Giving away control is not a black-and-white solution. You have to make sure you trust the controller.'
 
Hi Dee, I'm also in a profession open to litigation, not married and no kids...so I have a Hybrid Trust... I'm the sole beneficiary...my lawyer is the appointer. Both my lawyer and accountant were consulted prior to setting this up. I can borrow money in my own name for IP's, property title is in the name of the HDT, and HDT gets the loan money from me as Special Income Units. Works well for me.

Have a chat with a property savy accountant as well as your lawyer.
 
Hiya,

At an NTAA seminar earlier this year, the speaker (whose name I have forgotten) suggested that due to Richstar it may be worth suggesting that an accountant or solicitor play appointor for you.

The danger is in this is that there are too many dodgy people in both professions (as with all, of course).

Say you made me the appointor of your trust. I decide I'd like to run away to Peru or Greece or somewhere nice like that. I can then appoint myself as trustee of your trust, and create another company that both you and I are involved in.

By very virtue of the trust deeds, this new company is a beneficiary of the trust, and, the trustee is specifically allowed to act despite self interest.

So, it is my opinion that it is crucial that you and / or your partner are the appointors of the trust. I know that I would not want to entrust all of my assets to my accountant ;)

Cheers

James.
 
sailor said:
Hi Dee, I'm also in a profession open to litigation, not married and no kids...so I have a Hybrid Trust... I'm the sole beneficiary...my lawyer is the appointer. Both my lawyer and accountant were consulted prior to setting this up. I can borrow money in my own name for IP's, property title is in the name of the HDT, and HDT gets the loan money from me as Special Income Units. Works well for me.

Have a chat with a property savy accountant as well as your lawyer.
Click to expand...
Correction: I am the appointer, and my lawyer is the settler. :eek: Got to this stuff worked out in my head correctly in future.
 
Sailor - Who is trustee, corporate director and shareholder? in your situation

Rolf - disadvantage of the structure proposed is that they need guarantee from mother who is retired, personal guarantee from me, and mortgage for a loan
gee the banks have it covered
there would be an enormously low risk that it would reach mums assets tho

I have confirmed that banks will require director and personal guarantee

Everytime I try and set up a trust I get conflicting info from brokers, lawyers, accountants, forum, tax office etc
I got scared of the HDT and thought DT was easy and foolproof
now its a whole can of worms as well
The more I know - the more problems I see
It makes making decisions very difficult
I can only go on the advice of my best advisors and decide for myself
The asset protection does severely halt wealth creation with more difficult finance

There would be no point setting up a trust with me as appointor / or director at this stage
 
dee said:
Sailor - Who is trustee, corporate director and shareholder? in your situation
Click to expand...
Trustee is a P/L company where I'm the sole director of that coy.
Appointer and Principal and Beneficiary are all me too. Note this is an HDT...mainly because I don't have family, so can't have a Family trust of any kind.
 
sailor said:
property title is in the name of the HDT
Click to expand...

This intrigues me a little.
I was under the impression that a title could not be put in the name of the trust as the trust is in fact merely a paper document. I was informed that the title must be put in the name of the trustee. I have a HDT and could not put the title in the trust's name. Had to be trustee.
JIM
 
Ohhh...what the hell my two bobs worth aswell.

Just some thoughts that come to mind

Asset Protection - if you (Dee) borrow the money and loan to the trust then that forms an asset for you (as Alexlee noted). Similarly if you contribute that money then under Bankruptcy you may still be seen to hold it as an Asset. My feeling is that the bank has first dibs on any asset so what you need do is protect the capital growth - DT's are still great for this.

Appointor - having your mother as appointor may be interpreted by some as giving that position to someone you can control. I am favouring combinations of appointor's at the moment where a unanimous decision is required to change the trustee. This may help in bankruptcy where the Trustee in Bankruptcy attempts to control the trust. So yourself and a sperate party such as your solicitor/accountant.

Beneficiaries: these could be as per the normal, ie.the Named Beneficiary "Dee" then, parents, siblings, spouse, future progany etc. The NTAA are currently favouring a position that the taxpayer should not be the default beneficiary.

Finance - with a Discretionary trusts involvement, finance can be a little finnicky. Generally the banks will attemp to oversecure all over the place so a Gaurantee is likely. Now if the Trust borrows and the property is negatively geared then that creates the problem with losses being unusable in the Trust. Much nicer to borrow in your own name and then get the trust distribution as income to offset the interest deduciton and therefore use the negative gearing. However this is frowned on by the ATO as its a Discretionary Trust and you as a beneficiary do not necessarily have a direct entitlement to that income. Care must also be taken here with HDT's.
 
need to remember richstar family court and interlocutory order so not High Court decision yet. could be overturned. wise to be cautious though. if children named beneficiaries if you have some then cant argue they control trustee. how can children control you. should be other way round. and good deed would make mean parents captured anyway but not listed. different to carey. he was appointer, trustee, guardian and beneficiary. that is problem when you do all roles. maybe wife as trustee and husband as beneficiary or other way round. just be careful they dont say she doesnt control you. which is usually case anyway. my wife control me. particularly credit card.
 
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