Asset Protection/Tax Structure

1) Are they currently investing in property themselves and making money ? I know many "knowledgeable" people and they all have a lot of opinions and don't have much involvement in property themselves. Im currently doing my 5th renovation/development in this year to be finished by the end of the year and aiming for 10 renovations/developments for the next year so i cant say that I am that worried about the year coming.

2) Research – Discretionary Trusts (aka family trusts) and having a company as trustee for greater asset protection. Also helps if you have brothers or sisters over 18 earning a low wage (you can give them income earned in the family trust). Accountants would be good to speak to about this.

3) How large would your income/tax payments be considering you are currently in University ? Considering you just started your 2nd year and possibly have another 2-3 years to go.  

Terry, What would be your list for structures that provide the greatest to the least amount of asset protection?  

Geez Terry – I cannot see many clients lining up and paying fees for that piece of advice.

hahaha.. classic call there.. I'm sure there are plenty of divorcee’s that wish that had taken that advise

in that you have to imagine, if you were to go bankrupt at some point in the future what assets would be at risk

Depends on what you mean by 'business' and how things are structured.

If you personally go bankrupt all the property you own is at risk. The trustee in bankruptcy stands in your shoes and 'is; you. They sell your property and use this money to pay creditors.

Property = shares, units in unit trusts, land etc. But not property held on trust for others.

So the best form of asset protection is not to own any property. An interest in a discretionary trust is not property – they trustee in bankrupcy can still stand in your shoes and can ask to be conisdered when the trustee is distributing income, but that is all as, depending on the set up, there will be no requirement to distribute to him.

I am writing such a book. Got to think of a different title though.

I am not sure if I will publish it as too many trade secrets.

Hi Tom

Terry is correct in that asset protection advice should be through a lawyer, not an accountant.

One huge advantage you have, is that it is easiest to set up an appropriate structure early on. The more assets you have in the wrong structure, the more it costs to put them right.

I have just helped a client through the liquidation of one of his businesses and also personal bankruptcy.  He had some terrible advice 20 years ago on structure.  His accountant had him buy residential investment properties in the same company that his business traded in. He lost a lot more than he had to, over $600k net, that after they pay sales costs, CGT etc will eat up most of the capital and the liquidator will get the rest.  Luckily he had some good advice on a business he setup 5 years ago.  It is outside the reach of both the liquidator and his personal trustee.  It is still a very hard thing to go through, but at least he is still able to receive some income now and once out of bankruptcy will be able to receive more.

I think it is like insurance in many ways, so many people skimp on setup costs and there is no going back if it turns bad or you have excessive tax implications because of the lack of flexibility.$5k in extra setup costs when you are buying a property in the hundreds of thousands of dollars and a couple of hundred more a year is not a lot. If it goes bad there is no going back and fixing your structure then.  Imagine if does go bad done the track and you are going through litigation and staring down the barrel of losing everything and you remember that it was your choice not to setup properly.  It is a terrible thing to go through anyway, but if you put the regrets of your own decisions contributing to you losing everything, rather than just one part of your wealth, it is much worse.  

As TerryW was saying, asset protection from what? Different structures for different things.  

As a general rule, I am a huge believer in the following:

A Master Trust- your first trust that owns all your equity.  It lends money to other entities to do other things, secured by a second mortgage, registered charge of some other appropriate security, with a written loan agreement.

Unit Trusts or partnerships of discretionary trusts for joint ventures

Discretionary trusts for property.

Layers of entities for a property development

Layers of entities for businesses

But if you don't setup properly with correctly worded documents and agreements or your inter entity transactions are done poorly or not documented, then you may as well of done nothing to protect yourself.

Good luck with your research. 

Darryl