Protect your assets before it's too late. Until you've set up the right structures, one lawsuit could devastate your fortune. Our experts create custom solutions to ensure full protection of your assets so even if you are sued, your assets stay 100% safe.
While you can use a family trust or company to protect assets, the process of doing so is often costly. Transferring assets into a trust or company can trigger stamp duty or capital gains tax.
However, there is a way to transfer assets and not pay excessive fees. This method will also protect you from the 5 year clawback period under the bankruptcy laws.
This protective structure is a mortgage/charge over the property, and this is registered against the title. On this page, you’ll learn how it works, and how you can use it to protect your family home and investment properties.
For every family, your main asset is your family home. This house is usually bought in your own name, or joint names (you and your spouse or partner.)
Let’s take an example of a family home worth $1 million where you have little or no debt and it’s in your own name. Clearly if someone sues you or your business, your family home is at risk.
There are three ways you can protect your home from golddigging creditors.
Method 1 - Low Risk Owner
Firstly, if you’re married or in a serious relationship (such as de facto), you can put your family home in the name of the person with a lower risk of being sued.
For example, if a doctor is married to a retail employee, the retail employee is at lower risk of being sued. If the retail employee owns the property in their own name, this makes it inaccessible if the doctor is sued.
Method 2 - Transfer Into Trust
You could transfer the family home into a family trust managed by a corporate trustee.
The downside of this method is you’ll have to pay stamp duty upon the transfer, and your home will no longer qualify as your principal place of residence. Consequently you can’t claim any capital gains tax (CGT) and land tax exemptions in relation to this property.
Method 3 - Registration of Mortgage or Caveat
You can use a mortgage or caveat registration strategy.
This method means you create debt to protect your home. By securing the majority of your equity in your house via a second mortgage/charge, the property will be substantially encumbered. This will make your home far less attractive to potential creditors.
It is well known in liquidations and bankruptcies that as soon as the trustee in bankruptcy or liquidator (or the ATO) sees substantially encumbering mortgage/charge registrations against a title, they are less inclined to go after the house due to costs and inconvenience.
One major benefit of this strategy compared to transferring into a family trust is that it's considerably cheaper. You can keep your home as your principal place of residence, and have CGT and land tax exemptions, while still getting significant asset protection.
Below, we’ll go through the steps involved in protecting your property in this way.
This method involves setting up a family trust which, through a series of transactions, will take a mortgage/charge over your property. There are two ways you can do this:
1. You fund the debt from an existing line of credit or cash reserves by gifting the property into the family trust (see below) and then lending back to yourself.
2. You create all the transactions on paper
Option two may not be enforceable (although it is still a very effective smokescreen.) Therefore, we are focusing on option one in this article.
We set up a family trust (or use an existing trust or other structure) to take the mortgage/charge.
The advantage of a family trust is that no single beneficiary (or group of beneficiaries) has any claim to the assets of the trust, ie. nobody actually owns the assets of the family trust.
Therefore, in a lawsuit, if you go bankrupt, or if have the government after your assets, in most cases the assets in the trust don’t form part of your personal assets. This means they aren’t available to your creditors.
You can sometimes use an existing family trust, but it depends on the situation, as in some cases this will lead to your protection not being as good.
Our lawyers recommend an addition to this strategy which makes the protection more powerful. Contact us and speak to an expert if you'd like to explore this further.
It is always better, as stated above, to get access to real funds. The reason is it's more likely to hold up if the mortgage is subsequently challenged.
You can do this by:
1. Drawing from a redraw facility
2. Drawing from a line of credit (getting one created at your bank)
3. Using cash reserves (if you are cashed up)
To work out the best way to do this, you should get professional advice.
From there, you draw your funds, and put the cash into the family trust as a gift. The money should be physically transferred into the bank account of the trust.
Our lawyers recommend a few additional structures for optimum protection. Contact us if you'd like to discuss further.
The trust immediately pays the money back physically to you as an individual, but does it as a loan. The loan is then secured by a mortgage/charge over your family home, which you get a property lawyer to prepare, and have registered at the Land Titles Office either as a mortgage or by a caveat depending on your circumstances.
If done properly, subject to some clawback rules for bankruptcy purposes, the trust then ranks above all other unsecured creditors if you are sued, even though the property is in your name and is your asset. (If you have an existing mortgage over the property, this gets first priority.)
The beauty of this is you keep your principal residence exemption for CGT purposes, and also land tax exemptions for the property. And you get asset protection almost as good as if you directly transferred the property into the trust itself, but at a lower cost. You get your cake and eat it too!
WARNING: It is critical you get professional advice before doing this. Under bankruptcy law and other laws, there are provisions against defrauding creditors in certain situations. Although this can be done in a way which does not fall foul of these provisions, you should get it checked thoroughly first.
This strategy works well with a family home. With an investment property, the process works equally well.
You can save a small fortune in transfer costs by protecting your property this way. Normally, moving your investment property into a family trust would trigger both CGT and stamp duty, and in some States (eg. NSW), higher land tax rates. On top of that, in some situations you can lose the benefits of negative gearing as losses get stuck in the trust.
When done correctly, the strategy avoids all of that while ensuring your investment property remains fully protected.
This is why the strategy is so desirable, especially when it comes to investment properties.
For someone in your situation we recommend Mora Wealth Accountant will be the best fit to assist you.
Click the link below to visit their website. Let them know WealthSafe referred you for preferential treatment.
Wealth Safe is Australia's leader in offshore tax planning. When you work with us, you are selecting a creative out-of-the-box team. We can reduce your tax to as low as 5%, even 0%, while remaining 100% legal and ATO compliant.
Please note when dealing with Australian tax issues around offshore or higher level planning, you must work with an Australian tax expert. You will expose yourself legally and financially if you don't do this, as many overseas structuring companies are based overseas and don't understand Australia's unique requirements.
No. We can work with your accountant. If you don't have an accountant who can implement our creative solutions in your day to day tax returns, we have accountants we can recommend to you.
Not unless you want to. We will take care of all the difficult parts and teach you whatever else you need to know.
Not necessarily. It depends on what you're looking for. We will design strategies to meet your desired lifestyle. Keep in mind, however, that as a rule, you can get better tax savings if you leave Australia and become a tax resident overseas in a country like Panama, Costa Rica, Malta or somewhere like that. The Australian tax laws are super strict when it comes to offshore and it can be costly and expensive to comply with them.
Not at all. At all times we remain transparent with our costs from planning to implementation ... and work on a fixed price basis where possible. Our commitment is for your tax savings to outweigh your costs in working with us and setting up your structures, and accelerate you on your journey to financial freedom.
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