Best method for Asset protection

Hi. I am a lawyer specializing in asset protection. Firstly what are you trying to protect against?

Ultimately it seems bankruptcy is what you want to protect against and the best protection for this is an appropriately structured discretionary trust that has an open class of beneficiaries and gives the trustee the power to accumulate. Seek legal advice.

But assets of a trust cannot be willed. Ie cannot be left in your will.

For family law purposes trusts can be attacked but there are ways to strengthen then against childrens future spouses.

An alternative is to own in your own name with a discretionary testamentary trust set up in your will. This will provide slightly more asset protection than a yrust set up during life. There will also be more tax advantages.

To strengthen asset protection for personally owmed assets you can consider using loans from spouses or parents or related trusts. The lender could take a mortgage over your property to secure their loan and this could cause them to take priority over other creditors.

Also consider that structure is only half the story. The other half is how you transact things. Who pays deposits and how. How contracts are entered. Where rent money is paid etc etc.

Dymphna Boholt wrote a pretty good starter book for asset protection for property investors for Australian residents.

it’s called “Asset Protection Secrets of a Real Estate Millionaire” – you can just google it and order online they post pretty quick. it’s pretty good.

I have read that book and found it so full of holes it is not funny. The author doesn’t appear to be a lawyer and completely misses many areas that need considering while making mistakes various aspects that she does mention. I wouldn’t recommend it.

http://www.jenman.com.au/news_item.php?id=428

The no vesting date – any trust set up in SA doesn’t have to have a vesting date. In theory it could go on past 80 years, but just because there is no vesting date doesn’t mean it won’t vest. A beneficiary can force it to. But would SA law apply to a trust set up in QLD which nominates SA as the applicable law? Would the trustee need to be located in NSW, would the trust assets need to be located in SA. All these questions cannot be answered because these laws are less than 80 years old.

Most discretionary trusts would have the ability to distribute to lower income earning beneficiaries.

Asset protection will depend on the terms of the trust and how the trust transacts. A person using it as an extension of themselves would weaken asset protection considerably.

New beneficiaries can be added, but stamp duty and CGT issues arise. Broad wording can mean people that don’t yet exist are potential beneficiaries – grand children etc.

If you die any assets you hold as trustee do not pass via your will. Your position as beneficiary doesn’t pass via your will, any appointor postion could pass via you will, but probably shouldn’t. The trust will survive you and keep going under different control. YOu have to make sure that this control falls into the right hands.

The type of trust recommended will depend on your situation and what you are trying to achieve.

I charge $1500 plus GST to set up a trust, including 2 hours of legal advice and customising the deed.

A trust must lodge a separate tax return so there would be extra fees for this at tax time.

There are no good books on this topic – best is probably the Trust Structuring Guide which is very costly, but it is not so comprehensive – doesn’t discuss land tax at all from memory.

A trust is a separate entity for tax purposes (not for legal purposes though). So any expenses the trust incurs it claims, including depreciation. A trust can negatively gear, but you cannot use a loss in the trust to offset your personal income.

What does she fear about an ‘all monies’ clause?
If someone ends up bankrupt the bank can use its mortgage agreement with the borrower to secure all monies owed to it.

So I guess you are asking if there is a second mortgage to a related trustee would the bank take priority over the 2nd mortgagee. I think that will depend on the wording of the clause, and the circumstances. It did happen in a NSW SC case Meldov Pty Ltd v BOQ [2015] NSWSC 378

But usually the amount owed to the bank would be less than the property value.

A caveat is just notification to the world that someone other than the legal owner also has an interest in a property. It is not a form of security like a mortgage.

If a borrower doesn’t pay the bank will take possession of the house, sell it, and recover the money they lent and the associated recovery costs. If they property is valued at $800k and they only need to recover $400k it should be pretty simple. Not sure why they would contemplate sending someone to london to investigate – even if you had hidden assets in London, they are not out of pocket.
If the mortgagee did do something totally unnecessary and unjustifiable you would be able to argue to have these costs excluded from your debt. This doesn’t make sense to me.

You would have all the usual selling costs and legal costs which would vary depending how long it drags out – say $10k to $20k usually.

Yes the owner would get back any excess money – the mortgagee would be holding that money on trust for the owner until it passed back.

An unregistered mortgage isn’t indefeasible as it is unregistered. Lodging a caveat doesn’t register it, the caveat just notifies others there is an unregistered interest. It may give priority over other non registered interests though. To make the mortgage stronger it should be registered.

There is also a section in the bankruptcy act which makes contracts and deeds void, including mortgages, if they are undermarket value or done to defeat creditors. So would is the reason you would be giving a mortgage to a trust? You may use the gift and borrow back strategy. Gift money to the trust and then borrow it back but give the trust security for its loan. However then your gift is subject to the clawback provisions of s120 and also the s121 and even the conveyancing act -s34A i think in NSW – if you are trying to defeat creditors.