I was of the understanding that buying IP is safest using some form of limited liability company (although I don’t know all that much!)
In the next year or two, I intend to invest with two different investing partners – a friend of mine, with which I intend to buy some +ve IP and then, separately, my girlfriend, with whom I intend to do the same.
Obviously I want to set up entities to protect our current assets, and also to make it easy ( in the unfortunate event that my gf and I split) to go our separtate ways without either of us having claims to the other’s assets.
I spoke to my accountant over the phone, and mentioned starting companies as vehicles to invest with, but he said no, I’ll get taxed to highly, instead I should set up a unit trust or just borrow as joint borrowers…
What is the best way for me to go about setting these two partnerships up (obviously I’ll be doing them one at a time)?
Steve, what sort of structures do you and Dave use to buy IP?
Thanks,
Alex.
Unit trusts are good because the ownership portions can be fixed. You could also have your discretionary trust owing the units in the unit trust for maximum flexibility.
If there is a split up, it will still be messy and one will have to buy out the other, so it won’t be much different than buying in your own names, but the asset protection will be greater in the trust.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry.
So unit trusts are good asset protectors? In both cases (borrowing with my mate and borrowing with my gf) would it be best to borrow with unit trusts and hold equal shares of the trust?
Mooda, it doesn’t have to be equal shares in the trust, which can be really good if one puts more in than the other, etc. etc.
Also if you do split and no longer wish to own property jointly, buying back the units in the trust is a lot simpler than having to change the name on the title etc. etc.
Cheers
Meldam… Mel beat me to this one to answer, oh well
Agree with Mel… [
]Cheers,
sisOkay, so a unit trust looks like a good way to go.
But what about asset protection (limited liability etc).
ie what if the tenant sues us – does the trust itself protect us or do we have to set up a company as trustee of the trust to protect us.
Thanks for your replies.
I believe that the person who is suing, will have to sue the trustee of the trust. I think (and I’m not 100% so you must get your own advice) that if this happens, the trustee can be sacked and a new one appointed. The person suing continues to sue the (now former) trustee.
I suggest you invest in some knowledge from a good accountant, or find some trust books/manuals. A good resource is http://www.gatherumgoss.com where you can purchase Dale GG’s Trust Magic, which explains a lot. He is also fairly accessible to answer questions too.
Cheers
MelActually, the identity of the trustee of the trust is irrelevant. If the tenant sues the trustee, in its capacity as trustee of the trust, and you change the trustee, the tenant simply goes after the new trustee (sorry melbear – it’s not that easy to defeat a lawsuit [
]).mooda – there’re 3 different kinds of “asset protection” you seem to be talking about.
One is where things don’t work out between you and your mate or your girlfriend. That’s not so much asset protection, but simply structuring the arrangement so that you can cleanly and easily walk away from it if you needed to do so (ie by separating the jointly owned asset from your own personal asset, and by making it easy for either party to buy the other one out).
The second is where some liability arises in relation to the property, such as where the tenant sues to owner of the property (which will be the trustee in its capacity as trustee of the trust). That protects you from having any personal liability to the tenant (unless by your own personal actions, you caused the problem). In this case, your personal assets are safe, but the property isn’t, since it’s owned by the trust.
The third is where you get into serious financial strife (eg you max out your credit cards and can’t pay it off), independently of the property. The unit trust structure doesn’t protect you or your property. Your personal assets are exposed to your personal creditors. However, one of your personal assets is your units in the unit trust. If the creditors seize the units, they will control the unit trust! A discretionary trust will provide better protection in this event, because you don’t own any interest in the trust – you’re merely one of a number of potential beneficiaries.
Unfortunately, it’s not easy to get all the benefits. There are pros and cons to every structure. Maybe investigate setting up a discretionary family trust, which owns the units in the unit trust. Make sure you are the trustee of the family trust, and that you control who gets to be the trustee. Of course, this is more complicated, and will cost more money to set up. It may also make it more expensive (in bank fees) to borrow money. There’s always a price to pay or a trade-off for extra bells and whistles.
You should talk to your accountant and a lawyer to make sure that the things you want to achieve are achievable in the structure that you ultimately set up. All we can do on this forum is to give you tips on what to look into.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
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