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Asset protection mortgage trust

Discussion in 'Introductions' started by RoyG, 13th Mar, 2011.

  1. RoyG

    RoyG Member

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    Hi,

    Anyone know of a method other than transfer of phiciscal auctual money into a mortgage trust and the subsequent loan of money from the trust back to the property owner.

    Where the idea of a Mortgage or Finance trust is getting difficult and expensive is the auctual borrowing of the money. Not that the assets are not there it just the paperwork and costs involved when dealing with lenders.

    Some one hinted that their is another way but never elaborated further.

    Any one know how ?

    RoyG
     
  2. Terryw

    Terryw Well-Known Member

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    Roy,

    could you please rephrase that? What are you trying to do?
     
  3. RoyG

    RoyG Member

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    Mortgage trust

    Hi,

    We own a lot of rentals which were purchased prior to my knowledge of buying in trust. We are concerned about protecting the assets net equity value from any predatory litigant.

    We are investigating the setting up of a mortgage or finance trust and for the trust to place second mortgage over the properties to use up any net asset value.

    Example
    A lender loans us personaly the value of our net equity.
    We give to the trust the same amount
    The trust loans us back the same amount , taking second mortgage over our property as security for the loan.
    We pay back the original lender.
    Result is we now owe money to the trust and the trust holds mortgage over our property.

    The trust documents etc are reativly easy and cheap. Where we are finding difficulity is the raising and cost of auctual short term loan, we have had estimates of between $20000 and $100000 for a loan which may only be required for a couple of days. Also most lenders want us to jump through that many hoops like property valuations, proof of servicability (we only want the money a day or so) loan documents, lodgement of mortgages (for one day!) usual paperwork it makes it very difficult. All the lenders we have spoken with so far are just not used to such loan and show no interest.

    A hint was given by a law firm on a web site that their may be another way, other than using phiscal money, of acheiving the same end result. This is what I am trying to find out about.

    RoyG
     
  4. Terryw

    Terryw Well-Known Member

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    Roy

    It is not that simple I am afraid.

    Such a transaction could be easily set aside under several different pieces of legislation:
    Conveyancing Act (NSW)
    Bankruptcy Act
    Corporations Act
    possibly Trustees Act (NSW)

    Some questions to ask the promotor:
    What is the commercial reason for the transaction?
    where will the money go?
    what are the tax implications?

    ps. I have studied asset protection as part of my masters degree. It is a very interesting topic, but not as simple as some would have you to believe.
     
  5. RoyG

    RoyG Member

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    Hi,
    Thanks for your reply.

    What would you suggest we do to protect our assets against possible law suits and claims ?



    Their is no promotor . It is just information I have picked up and put together.

    Their is no comercial reason other than we would borrow money from the trust (interest free) in order to repay a loan we have from a bank lender, with the trust using our properties as security for that loan.
    The money would just be a round robin from the original lender and back to the original lender.
    It is unlikley that we will face bankruptucy. There is nothing lurking out there that I am aware of at the time of writing.
    By fully encumbering the titles, in a trust, would put a difficult barrier between our assets and any thoughts of a lawyer starting litigation?
    Any conveyancing would be done by a licenced conveyancer. Not that the properties are being sold or transfered, only mortgages placed over them.
    The trustee will be a company set up to only act as trustee, not trading.
    The information I have is that their will be no tax requirements from the ATO because the original loan is of a personal nature and no deductions will be claimed against fees or interest. The loan from the trust is interest free. The trust will pay no tax because it is not trading or making any income.

    It all sounded like a good idea ?

    But I would be interested in any ideas that you have.

    Regards
    RoyG
     
  6. Terryw

    Terryw Well-Known Member

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    Sounds good in theory. But it won't work.

    Actually, it could have some cosmetic effect in that anyone looking briefly may see the mortgages and then give up without going any further. But from what I have seen lawyers will talk their clients into pursuing matters when they think they can win in litigation -even if there is no money to satisfy the judgment. Lawyers will still get paid.

    You say there is no risk of bankruptcy, but this is really what asset protection is all about. Protecting "your" assets so that in the event of bankruptcy those assets won't fall into the hands of creditors. If someone were to sue you and obtain a judgment, there is really just 2 options, pay up or be bankrupted.

    Asset protection for family law issues is also very difficult.
     
  7. RoyG

    RoyG Member

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    Asset protection

    Terry,
    Thanks for your comments.

    What would you do to protect your existing assets ?

    RoyG
     
  8. Terryw

    Terryw Well-Known Member

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    There is not much you can do really.

    You can mortgage them up, receive the cash and then spend the cash so there is nothing left. you would need to keep doing this as the values increase. Not good from a tax point of view though as you will be borrowing money but won't be able to claim the interest.

    You can use options as well. Sell an option over the property to "someone" and have them lodge a caveat to protect their interest.

    Run up large debts to "someone" who takes a charge over your property, including charges over your company, personal property etc

    Vendor finance a sale into a trust at commercial rates.

    You have to be careful about this someone. If it is a person, then this is only good if they are safe - family law, bankruptcy etc. If it is a company/trust then you have to be careful about being classed as a related entity and having it looking like a scheme to defeat creditors. Consider overseas trusts and companies.

    The best method to protect Australian assets is to buy them in a discretionary trust from the beginning, taking care to keep the transactions clean to avoid possible problems later. Slowly build up assets in different trusts and move money overseas so if something does go wrong, your creditors will have to deal with several jurisdictions.

    The sooner you take action the stronger the transactions will be/appear to be in terms of clawback under bankruptcy act etc. But if you are doing something to defeat creditors it could be wound back or reversed indefinitely.
     
  9. RoyG

    RoyG Member

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    Asett protection

    Hi, Terry,

    Your suggestion of mortgaging them up and spend the money is no different to my original thoughts on setting up a mortgage trust ??? Please read it again, it does exactly the same thing, the trust loans me money and I spend it paying back a loan to a bank.

    Your suggestion of an option is interesting. I suppose a trust or company could take an option to purchase ?
    How safe are option contracts in law ?
    What ranking would they hold against a creditor if the option holder excercised the option ?

    I perhaps need to explain a bit more of our situation. We have owned the (30) properties for over 15 years. We are both retired in our mid 60s and have been together over 30 years. I do not think their is any chance of a family law court involement or bankruptcy. What we are concerned about is becoming an easy target of a suit because of our net wealth. We are trying to put a few obsticles in the way of any litigant. I realise that any structure can be ordered to be unwound if it was established a short time prior to an action, but there is nothing I am aware of that is pending or on the horizion. It would be far to costly to transfer the properties into a trust because a CGT and SD. We have insurances but I do not put blind faith in them when it comes to paying out.

    RoyG
     
  10. Terryw

    Terryw Well-Known Member

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    Your method had to paying back a loan. So the money is traceable. The loan is for a third party too. So you are essentially gifting to a trust aren't you? Since you are doing it with the intention to avoid paying creditors it could be clawed back indefinitely. Even without this intention it could be clawed back for 5 or 10 years.

    However, if you just 'spend' the money, it is gone and cannot be clawed back.
     
  11. Terryw

    Terryw Well-Known Member

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    Options are binding contracts. They give the taker an interest in the property. I am not sure, but if they lodge a caveat to protect this interest it could have priority over other unsecured creditors. You will have to use a lawyer to set this up. There are also CGT implications as the granting of an option is a CGT event.

    But you have to be careful about it being seen as a scheme, between related parties and being non-commercial.

    In your situation you could possibly gift any cash you have to a DT and then borrow to live off the equity. The sooner you gift the safer it will be.

    You should also make sure you consider setting up a testamentary trust in you and your spouses will. If one of you goes first, some of the properties may be able to get into the trust without stamp duty or CGT. This will be very tax effective too, especially for any children or grandchildren - up to $16k pa tax free each. If you don't have any children or grandchildren i am available for adoption.

    A lease option situation may work too. Your trust rents the property and takes an option to purchase. The strike price could be set to drop each year the lease continues with the property being bought by the trust for $1 in 30 years. This would help move equity over to the trust slowly and avoid CGT upfront (except on the option fee).
     
  12. RoyG

    RoyG Member

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    Asett protection

    Hi Terry,

    Thanks for the feedback, it has givem me food for thought.
    Seems like we had better be good and not get sued.

    RoyG