Protect your existing assets without triggering tax and stamp duty

Protecting your hard earned assets is increasingly becoming a common concern especially with the increasingly number of frivolous claims.

For centuries people have used trusts to hold assets so as to protect them and to increase their flexibility.

A trust is useful in this regard as the individual does not own the asset; it is owned by the trust.

The individual controls but does not own.

Therefore, if the individual is sued the assets in a trust are not theirs to lose.

The individual through their control decides how trust income is distributed and to who so has the benefits without the litigation prospect.

Typically, assets were owned by either a company or trust (normally a discretionary trust or family trust).

The problem with a company is the individual is normally the shareholder so they could lose the shares in a successful lawsuit and therefore the assets and cash flow of the company.

The other problems with a company are it does not receive the 50% general Capital Gains Tax discount, traditionally it is inflexible as to who can receive distributions plus if the asset was negatively geared the individual could not take advantage of the tax credits of the negative gearing.

The use of a discretionary trust gives asset protection and the ability to claim the 50% CGT General Discount but again did not give any tax credits to the individual for negatively geared assets.

For property, land tax is also a consideration when using trusts are the various state governments have different thresholds applying to trusts and for the investor at the beginning of the wealth creation the impost of land tax may be too much of a burden.

For the more seasoned property investor who as an individual is paying land tax then the trust has no adverse impact.

Trusts and companies in the way they are typically used do not allow an individual to receive the main residence tax concessions or any first home owner’s concessions which would apply if the family home is held in the individual’s name.

All the above can make things very confusing and without very specialised advice many people built up their wealth in their own names.

With changing views on asset protection and estate planning many people are now looking at how they own assets and are looking for strategies to give them asset protection.

While it is true that people believe they will never be sued or if so they have adequate insurance the facts suggest a different answer in reality or maybe individuals are no longer prepared to take the risk.

For assets to be acquired the use of trusts can be an easy decision but the question is “how do I now protect my assets which have been purchased in individual or company name”.

A simple solution is to sell them to a trust but that is not without a substantial cost.

When you sell assets you pay tax on the profits and you would also need to pay stamp duty which again is substantial on property.

You may also need to refinance if you have debt as the “legal owner” of the asset changes and if the finance market is tight this refinancing may not be easily completed.

So what do you do?

At Metropole Wealth Advisory we have developed a number of 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 ie the family home and one investment property to more complex solutions for larger asset bases where an individual wants both asset protection, estate planning and the ability to redirect who receives distributions.

Below are two such strategies that do not trigger capital gains tax and in most cases does not trigger any transfer stamp duty on the underlying assets.

Key to these strategies is the fundamental notion that when being sued people want your money not the bricks and mortar or other physical asset that you have.

Therefore, you must protect your equity (net worth) not the actual assets.

1. Equity Transfer

This solution allows an individual to transfer the equity as opposed to the asset from an unsafe environment to a much safer environment.

Assume the person has a family home with significant equity (market value less debt) and wishes to purchase an investment property.

A properly arranged loan will allow the investment property to be purchased in a Property Trust™ while still allowing the individual to claim any negative gearingand have the debt which would have been allocated to the investment property to the home.

The interest on the debt if structured correctly is still fully tax deductible as the purpose of the loan is for investment.

This leaves no equity on the home and transfers the equity into the Property Trust™ were it is protected.

No CGT or transfer stamp duty is triggered on the asset.

2. Equity Transfer Trust

This trust structure and relevant agreements are designed to assist clients with a more substantial asset base including properties.

The ETT takes on the role of a lender and places a mortgage on your assets thereby reducing your equity to nil.

It is your equity which a law suit goes after not the asset so the protection of your equity (net wealth) is the primary consideration.

No CGT or transfer stamp duty on the assets is triggered.

Depending on the state where the assets are located mortgage stamp duty maybe applicable but this amount is approximately one tenth of what would apply as transfer duty on the asset.

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 must also be considered against the benefits.

Here’s what you can do about this now…

Why not discuss your individual needs & let Ken Raiss, director of Metropole Wealth Advisory, formulate a Strategic Wealth Plan for you, your family or your business?

Remember attaining wealth doesn’t just happen — it’s the result of a well executed plan so please click here and find out more about our services.

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.

Using our depth of skills in these core disciplines, we adopt a coordinated project management approach and access other specialists as needed to further enhance our integrated advice solution.

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

Originally published at on January 20, 2018.

Michael Yardney is a #1 bestselling author & a leading expert in the psychology of success and wealth creation Sharing stories on Success, Property & Money