Asset Protection for Existing Assets- Ken Raiss
Chan & Naylor have developed four strategies that can assist its clients wanting improved asset protection and estate planning ranging from simple solutions for assets which are low in number or value i.e. the family home and one investment property, to more complex solutions for larger asset bases where an individual wants both asset protection and estate planning. All four strategies do not trigger capital gains tax and in most cases do not trigger any stamp duty on the underlying assets.
This solution allows an individual to shift the equity as opposed to the asset, from an unsafe environment to a much safer environment. This leaves no equity on the asset and shifts the equity into the property investor trust where it is protected. No CGT or stamp duty on the assets.
Equity Bank Trust
This trust structure and relevant agreements was developed by Chan & Naylor to assist clients with a more substantial asset base including properties. The EBT takes on the role of a lender and places a second charge and or mortgage on your assets, thereby reducing your equity to nil. No CGT or stamp duty on the assets is triggered. Depending on the second mortgage documentation there may be a stamp duty on the mortgage document which is a small percentage of what would be the case on the asset.
Family Estate Agreement
A will is essentially your wishes on how your assets are to be distributed on your death. If you are sued the will cannot protect your wealth. Normally people pass on their assets via a will but the will does not protect your assets. It only says that the assets will go to someone if they are there at the time of the owner’s death. Therefore if you are successfully sued before you die and you lose your assets the will is meaningless as there are no assets to pass on.
The Family Estate Agreement is a three part process which creates a legal binding obligation to move ownership of your assets and therefore your net wealth on death, to a specially designed Family Lineage Trust . This ensures that your assets stay within the family and not to in-laws etc. If sued prior to death then it is this contractual obligation that is used to protect the assets in that you effectively have passed on the ownership of the assets at the time of the contract. . No CGT or stamp duty on the assets. There may be a small stamp duty on the documentation depending on the location of the assets as different states apply stamp duty on documentation. This strategy is more complex than the previous two and normally used for clients with larger net asset values or more complex assets.
Business Restructure Trust
A more complex strategy for those with significant assets including business assets or the shareholding in a company operating the business. This strategy allows the transfer of assets to a trust from a company without CGT and also maintains the pre CGT status of any assets. This is a very valuable benefit. This strategy creates asset protection as the assets are now in a trust. Once in the trust, any income or profits are capable of being directed to other trusts. Most states, other than Queensland, would have no stamp duty applied.
Main Residence Trust
As an additional strategy, clients who believe they are in a high litigation risk environment can purchase their family home in a trust and still receive the normal main residence tax benefits including in many states nil land tax and in some instances no additional stamp duty on the property purchase. In some states a second stamp duty may apply but this cost may be offset by the other advantages. It is critical to note that interest deductions on money you borrow to purchase the property being your home would not be deductible as it is considered a private/personal expenditure.
Care must be taken in the drafting and execution of these strategies and in particular the relevant claw back provisions of the bankruptcy legislations which would require a four year waiting period from the commencement of the strategy until asset protection is fully available. This time period is the window in which a receiver in bankruptcy can go back to unravel any strategy. Appropriate documentation should also be prepared and executed showing solvency statements and the confirmation that there are no potential litigations pending. The cost of the various strategies will be dependent on the complexity of the assets involved and the current ownership structure. As always the costs of any strategy must also be considered against the benefits.
Important notice and general advice warning:
This information is of a general nature only and is not intended to represent investment or professional advice. This information does not take into account your individual objectives, financial situation and needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A Product Disclosure Statement (PDS) for the products mentioned in this communication should also be obtained and you should consider the PDS in deciding whether to acquire, or to continue to hold, any investment.
The information contained in this document is given in good faith and is believed to be correct at the time of publication, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omission (including responsibility to any person by reason of negligence) is accepted by Chan & Naylor Pty Ltd, its officers, employees, directors and agents.