Hi,
Speaking to my accountant the other day, I asked whether when we are ready to buy an IP if we should set up a trust to protect our PPOR. He advised that unless we were running a business that it wasn't really necessary, that an alternative was to set up each loan with a different bank. I understand that if we for some reason had the bank come after us, they only have rights to the property with the loan registered to them (please correct me if I'm wrong as I'm still learning). However if someone wanted to sue us for what ever reason they are still able to go after all the properties regardless of how the loans are set up, wheres a trust would protect the IP? Can someone spread a bit more light on this and let me know if I have this correct.
ThanksYour sort of correct.
If you use a house as security and default on the loan the lender can take repossession and then sell the house to cover the loan taken out. However, if you default on a loan and the bank repossess the house and sell it and there is still a shortfall the bank will then sue you and if they win they can still go after any house even if have houses at different banks with different and separate loans this. If just takes a bit longer as there is a bit more to it.
Using a trust means that the properties are not yours so they will not be easily able to take the trust property. However if they bankrupt you they may start looking at your relationship with the trusts – did you gift money to it, or loan money to it. If you did then they may be able to sue the trustee to get the money back in certain cases. But it is still added protection as it takes a lot of legal work and time to do this and it may not even happen.
Business operation is a dangerous game, but anyone can be sued and you could end up having a substantial award against you for something which was not really your fault – there is a thread here about a landlord who was sued because a tenant punched a window and cut his hand on glass. It wasn't safety glass and the landlord and agent had a $800,000 judgment against them.
If th
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
Hi Bayer
From a purely asset protection point of view, then yes, a trust is probably the way to go.
However a couple of downsides of a trust structure are:
1. Any losses generated from the property are quarantined in the trust, i.e. you can't use these losses to offset your PAYG income and
2. In NSW, discretionary (family) trusts get no Land Tax threshold, i.e. you pay land tax from the first property.To overcome the Land Tax issue, we use a unit trust (these get a Land Tax threshold) and the units are owned by our family (discretionary) trust.
And to overcome the limitation of losses being quarantined inside the trust, we have a mixture of positive and negative cash flow properties inside the trust, with the aim of getting as close to cash flow neutral, inside the trust, as possible.
As usual, the above is just our experience. Please check all this with your relevant professional.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Thanks alot for your comments guys, this has given me a lot to think about. Sorry for the delayed response.
Kind regards
B.
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