Have a general query regarding the possibility of transferring my unit to one of my parents as a gift (ie, for free). The property was purchased as an "investment property" in 2004 but I moved in in 2010 so it is now my permanent place of residence. Assuming the mortgage is fully paid off and I want to transfer this to one of my parents, I was just wondering what kind of costs I might be looking to pay. For eg, are there any government fees or capital gains taxes I'd need to pay (even though I'd be transferring it to them at no profit)? The property was valued at over $300,000 when I purchased it but it is potentially worth $400,000 today. The reason I'd be doing this is because I'm thinking of working as a sole trader in an area where there is always potential for lawsuits and I don't want to risk losing my home if one ever arises. So I guess I'm just wondering if this would be the best asset protection strategy?
At the very least, you'd be up for stamp duty – which is always payable when a property transfers to a new name. It's about 5% of the property value, so it'll be about $20k.
I think your logic of transferring it to your parents name for asset protection is weird. They are then just going to leave the place to you in their will anyway. Why don't you set up a trust and transfer the property into the trust. You will be the controller of the trust, but the trust is not "you"… so if "you" the sole trader gets sued, the property is safe hiding behind the trust.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
ps, please tell me you intend to take out public liability insurance etc for this sole tradership?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
As JacM has mentioned any change in ownership will trigger both Stamp Duty and possibly a CGT.
Transferring the property to your parents may also have effect on their current or future pension entitlements if applicable so think long and hard about this before doing so.
You could always look to Transfer the property into Trust.
Of course if you intend to buy again or utilise the equity for your new business or further investment you will that any potential financier will take a charge over the security so the pecking order for potential creditors is diminished. Not so attractive to take legal action against someone who has an Asset with a Bank loan secured against it.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
There will be little to no asset protection with you transferring to your parents (or a trust) for free. Even if you do it for market value it could be clawed back, especially in the early years. Have a quick skim thru the bankrupcty act.
Either way you will be up for stamp duty and CGT at market rates for a transfer to parents or a trust.
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
I guess I'm just wondering if there is any asset protection available that won't cost thousands of dollars that would enable me just to protect my home as that's all I ever plan to own and it's a little worrying the thought that I could end up on the streets just to pursue a project that I'm very passionate about.
there isn't really anything simple you can do, especially for existing assets.
You could set up another trust and borrow money from the trust securrin the house with a second mortgage.But you will have the cash and it will be an asset which will be at risk if you go down. Would be expensive tax wise too,
You could set up a trust and let it buy property using the house as security. But this may not be completely safe as the trust is obtaining an advantage without any benefit.
There are also options – you could sell an option to your trust and have the trust lodge a caveat over your house. This should give some priority to the trust if things go bad.
A life tenancy may be an idea too. But these are only valid for the life of the tenant. A trustee in bankruptcy may be very happy if the life tenant were to suddenly die during your period of bankruptcy.
The only completely safe option is to sell the house and spend the money i think.
If it is a project you are worried about then try to use a company to do it to limit liablity. Do every thing legal, take out insurance and take some protective measures and you should be fine.
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
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