trusts. Can they hold mortgages over outside assets

[yeslist]

For asset protection, can a trust hold within its structure a mortgage or secound mortgage over an asset outside the structure.
Eg. a property free and clear title which is outside and unprotected by the trust structure. could this asset be protected against outsiders if the trust held a mortgage over the asset?
Any feedback appreciated.
PS This would be only for asset protection not tax protection.
Y

 

[WillG]

Hi Yeslist,

I was under the impression that the only way a trust can 'safeguard' assets is for the asset to be purchased/transferred by the trust.

In the case of an IP being transferred into a trust, Stamp duty is payable.

 

[NigelW]

Originally posted by yeslist
For asset protection, can a trust hold within its structure a mortgage or secound mortgage over an asset outside the structure.
Eg. a property free and clear title which is outside and unprotected by the trust structure. could this asset be protected against outsiders if the trust held a mortgage over the asset?
Any feedback appreciated.
PS This would be only for asset protection not tax protection.
Y

Anybody can take a first registered mortgage or top up second mortgage over a property. The aim is not so much to directly protect the asset but to make sure that somebody other than the owner, ie the mortgagee, basically takes all the proceeds on a forced sale so there's nothing left for the creditor of the property's owner.

It's less than ideal. I also think you would need genuine (ie non-sham) reason for doing so...and of course the loan amount would have to be for close to the entire value of the property

the loan could be a book loan of course, but then the bankruptcy trustee or administrator/liquidator MAY be able to call for the loan to ACTUALLY be disbursed...

I'd steer away from this approach if it's a contrivance rather than steming from any real need to structure in this way...there are more bulletproof methods

BUT get professional advice on your specific circumstances.

Cheers
N.

 

[yeslist]

Thanks W and N

Nigel. Can you elaborate on the "more bullet proof methods of asset protection" please.
I am open to any ideas regarding asset protection. The simpler the better.
Trusts seem to me to be a whole new learning curve a open a whole new can of worms especially when it comes to borrowing money.
The Idea of the trust only holding a mortgage apeals to me as it may be simpler to maintain than the usual structure. Nothing dodgy was implied only to protect assets against vulchers.
Thanks again
Y

 

[NigelW]

Originally posted by yeslist
Thanks W and N

Nigel. Can you elaborate on the "more bullet proof methods of asset protection" please.
Y

Fair question. Lengthy and complex answer and one which will vary dependant upon your circumstances.

I'll endeavour to get back to you in due course...but in the interim I recommend you have a read of Dale's "Trust Magic" manual. Check out his website for order details.

cheers
N.

 

[NickM]

Y
I have a strategy whereby you can gift money to a trust and then the trust lends it back interest free and registers a mortgage over the property.

it is a little more involved than that, but that is the basis of it.

NIckM

 

[NigelW]

Originally posted by NickM
Y
I have a strategy whereby you can gift money to a trust and then the trust lends it back interest free and registers a mortgage over the property.

it is a little more involved than that, but that is the basis of it.

NIckM

Hi Nick

I appreciate you may not want to divulge all your secrets here...
but isn't there a risk in that scenario that an administrator or liquidator of the trustee could use the personal covenants to repay in the loan to bankrupt the property owner if there's a shortfall on sale of the mortgaged asset?

Cheers
N.

 

[NickM]

Nigel
Providing it is done well before any bankrupt proceedings has commenced you would be fine. You might also take note of a 2year clawback provision that exists in bankruptcy.

the only problem with this strategy is if the mortgage is taken out at today's market value of say $1mill and then in 10 years time you are sued for $2Mill then you may have a problem.

However in saying that it is important with any type of structure to ensure you maintain it and you may increase the loan and the mortgage from time to time.

Imperative that all of the documentation is completed correctly including stamping of loans and mortgages etc

NIckm

 

[yeslist]

Hi Nick and Nigel
Thankyou both for your very interesting ideas. The reason I have been thinking along these lines of pure asset protection(Bullet proofing) is that our current property investing stategy is very simple, straight foward and successfull so why confuse the whole thing with a complex new system with a number of negative and complex problems to overcome.
I awoke at around two in the morning the other day with the above simple solution(mortgaging assets) in regard to "calling the litigators bluff". After all it is unlikely they will spend money chasing after your money if it is all tied up in mortgages.
I understand that if one where forced to sell everything it would be a pain how ever the trust would still be left with something ie. a substantial amount of my equity.
I think that setting up a company and trust structure in this way ie. purely for hold mortgages etc. could be a more user friendly, cost effective, simple solution to the complex problem of protecting equity.
Y