Your plan doesn’t sound too appealing to me. Where would you live?

First thing to do would be to work out if you qualify for finance – which appears it might be difficult to do.

I guess the down sides are:

a) Tax – what if you need the money to buy a kidney or fly around the world?

You might be able to borrow, but the interest won’t be deductible.

b) risk

What if the worst happens, and you have a cash flow crisis?

c) retirement

Retirement could be delayed if your rents are not enough

d) Helping kids

What if you wanted to help one of your kids into a house – you could interest free lend them and claim the interest on your investment loans giving you great deductions and save you tax while helping them.

etc

psrproperty wrote:

To exercise an example that may be more relevant to someone who wants to start off in buying property using company trustee trust structure. Say if the sole company director (so sole guarantor in this case) has 10 properties, and he only puts 2 properties as assets for the guarantees. In the event of company bankrupt, does it mean creditor can only chase the guaranteed 2 assets, or can creditors reach as far as the other 8 assets since they are owned by the guarantor of the company being sued?

I think you are misunderstanding the guarantee here. There are 2 types of guarantees

a) security guarantee where property A is used as security for a loan to buy property B.

b) income guarantees where a person’s income is taken into account for a loan with someone else as the borrower.

Here we are talking about income guarantees. A brand new company will not have any income of its own so the lender will rely on the director to pay its loans for serviceability reasons. If for whatever reason the company cannot pay its debt the lender will have a mortgage over the property owned by the company. This enables them to take possession of the property and sell it to recover their money. If this is not enough they will go after other assets of the company (and trust if company was acting as trustee) and/or the assets of the guarantor – they will ask the guarantor to repay the loan first though.

When a person acting as trustee borrows they are the borrower, personally liable and indemnified out of the trust assets. If things go wrong their personal assets are at risk.

When a company is acting as trustee it will be the borrower, the company personally liable for the debt and indemnified out of the trust assets. If things go wrong the company’s personal assets will be take risk – that is why company trustees generally don’t have any assets.

The shareholders cannot be liable for the company debt and even the director is not personally liable – but there can be ways they are tied in to become liable.

All this changes though when guarantees are given. Under a guarantee the guarantor is contracting to make themselves personally liable to pay the debts of the company – both personally and in its capacity as trustee, but only if the company does not, or cannot pay them. This is a contingent liability.

This means that when a company borrows, whether in its own right or as trustee, the debt is not a debt of the person.

If they go and borrow separately this is not their debt. If they set up a second company the debt of the first company is not debt of the second company – no connection, other than via the personal guarantee.

This is the issue though:

Some lenders, most lenders, tread guarantees the same as borrowings for serviceability.

What does the book say?

CGT = proceeds less cost base

cost base would be apportioned between the 2 on a reasonable basis. Might be based on land area or valuation generally.

A member of a superfund could potentially buy off the trustee – but seek legal advice as many issues.

not if you are a beneficiary of that SMSF

Its a mistake to think a ‘trust’ equates to asset protection.

It comes down to several things such as

a) terms of the trust deed

b) structure of the trustee

c) funding the trust

d) documenting things

e) transactions

As an example I have seen many people that might set up a trust, usually with an accountant, who have never read the deed. They paid the deposit on the property and then make the loan repayment on the trust’s loan.

If they went bankrupt it is easy to argue the trust does not exist, or the trustee holds the property on a resulting trust for them. So no asset protection at all.

To check, if the solicitor is holds a NSW practicing certificate you can search here https://www.lawsociety.com.au/for-the-public/find-a-lawyer

Search for the solicitor or the firm name.

There are similar ones for other states.

Lawyers must renew every year.

Sometimes non-legal firms provide documents which have been drafted by a lawyer. Unless that firm itself holds professional indemnity insurance you would not be covered if things went wrong. You could not sue the lawyer either because you would only have a contract with the intermediary firm.

My company is an incorporated legal practice and covered for legal advice. I specialise in estate planning, asset protection and structuring.