How to protect assets in your own name

Australia is becoming a more litigious society with more people considering suing and more lawyers opting to take on their cases for no upfront fee.

While the number of law suits in Australia is growing, we’re still a fair way from the situation in the USA, where people have a 33 per cent change of being sued in their lifetime and a 10 per cent chance of being named in a law year in any given year.

Why is litigation booming?

The key question, however, is why is litigation booming? legal law

The answer may be as simple as more lawyers and more wealthy people coupled with a general apathy towards wealth creation and a propensity to take it from others.

Of course, not all Australians share these traits which is a blessing.

Most Australians would not normally consider themselves vulnerable to litigation as they would not normally put themselves at risk and often have appropriate insurances as well.

But can you really expect insurance to pay without question if you’re sued and how do you stop frivolous cases “just because they can” with lawyers eager to take on work on a no-win, no-fee basis?

Here’ some examples 
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Let’s imagine a situation where as a new graduate you steadily move up the ranks of production to become the Site Engineer where you now take on a personal liability of Occupational Health and Safety.

Or perhaps your children illegally download music or film.

Or you are under insured and your house fire also damages next door which you become personally liable for part of the rebuilding of both properties.

We also need to consider that with more Australians frustrated with the share market and moving into residential property there is increased risk from a tenant, their family or visitor if they are hurt in your premises.

The potential areas of risk are endless and if you are in business the list exponentially increases especially if you have employees, you are in manufacturing, chemicals, health care or transport or if you are in a professional services environment.

Over the years you may have invested in your family home, shares, residential property just to name a few and the traditional ownership structure would likely be in your personal name.

But all of these assets are potentially at risk in the event of litigation against you.

What about trusts?

Yes, you may have purchased in a trust, but while these are protected from a personal claim against you they can be litigated from inside. Businessman showing a document

The Greeks were able to attack the city of Troy once they got inside the gates by using the Trojan Horse – this is similar to a trust being sued by a tenant, for example.

A popular asset protection technique is to sell your personal assets into a trust but this will trigger Capital Gains Tax, stamp duty (dependent on asset) and a need to refinance as the title changes if debt is involved.

But all of these are expensive, time consuming and mostly problematic.

No one wants to wake up in the middle of the night griped with concern, fear or anxiety about whether they could possibly lose all of their assets.

An effective asset protection tool is debt because banks nearly always get paid first as well as their entitlements.

This is because banks have a first mortgage over your assets and these are ranked first in the payment schedule in any bankruptcy or request for payments such as from litigation.

Why not become a bank?

Therefore, why not act like the banks and put a mortgage against your assets?

Such a strategy involves transferring equity from an unsafe area (your name, business, trusts holding actionable assets) to a safer area such as a trust (no other assets that can trigger litigation).

What this means is that you are effectively moving money and as such would not trigger Capital Gains Tax or transfer duties. 

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 Also the title does not change and so no refinancing is necessary.

In this strategy, equity is gifted from the owner/controller to the Equity Transfer Trust™ and then borrowed back with a mortgage where documents are properly drawn up and executed.

Payment of this loan would be behind a bank’s first mortgage, but ahead of unsecured creditors who are the ones that are usually trying to sue you.

Such a strategy could be adopted as part of your wealth creation and estate planning initiatives.

It also still leaves your equity available to use as security to borrow first mortgage funding for investments or other requirements and once in place it requires relatively minimal administration.

How can this apply to you?

If you’d like to know more about how an Equity Transfer Trust could protect your assets, why not have a strategic discussion with me about your individual needs and let Ken Raiss formulate a Strategic Wealth Plan for you, your family or your business. 21138688 - 3d people - man, person and question mark. confusion

Just click here and find out more about Metropole Wealth Advisory’s range of services and book a time for your strategic consultation.

Just click here and leave your details and we’ll be in contact to explain more.

We offer you guidance and support that contribute to seamlessly combining the essential financial areas of your life.

Whether you are a business owner, a professional or a high-income earner we provide you with an individually tailored solution integrating the core disciplines of taxation, superannuation and property investment interwoven with finance, asset protection, succession and estate planning, personal risk insurances and philanthropy.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

Disclaimer

This article is general information only and is intended as educational material. Metropole Wealth Advisory nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives. 



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About

Ken is director of Metropole Wealth Advisory and gives strategic expert advice to property investors, professionals and business owners. He is in a unique position to blend his skills of accounting, wealth advisory, property investing, financial planning and small business. View his articles


'How to protect assets in your own name' have 2 comments

  1. Avatar for Property Update

    July 11, 2018 @ 11:48 am Bruce

    Therefore, why not act like the banks and put a mortgage against your assets?

    Such a strategy involves transferring equity from an unsafe area (your name, business, trusts holding actionable assets) to a safer area such as a trust (no other assets that can trigger litigation).

    Thanks for the info Ken, but this above, how can it come from an unsafe trust to a safe trust? If I had just a trust with 1 house, can we put other assets, (house(s) under the same trust and make it safe from litigators and or scammers?
    & thanks for the article, no doubt allot of people read them, regards, Bruce

    Reply

    • Avatar for Property Update

      July 13, 2018 @ 1:04 pm Ken Raiss

      Hi Bruce
      Thanks for your question.
      When using trusts the assets are protected from personal litigation but the tenant in the property can always sue the trust via the trustee. The strategy would transfer equity irrespective of asset owner.
      if you have a trust with 1 house and you put other assets in the same trust then to be safer all the equity irrespective of which assets it relates to would be transferred.
      The issue with having multiple assets in one trust is that it increases the exposure for possible litigation from multiple tenants and therefore many clients limit the number of assets in each trust. This is done for managing asset protection, increased flexibility with some banks, managing different cash flows and managing land tax just to name a few reasons.

      Reply


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