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  1. #1
    Join Date
    Sep 2009
    Location
    Auckland
    Posts
    30

    Default Looking for the best ASSETS PROTECTION structure

    Hi all,
    Just wondering what you would do if you were us.
    Current situation;
    Rental Property A
    held in a QC - AA limited (my wife and I are the shareholder 50/50)
    mortgaged to Bank AAA
    revolving credit facility
    bank balance in credit currently ( no outstanding loan)
    Rental properties B and C
    held in family trust BB (my wife and I are the trustees and beneficiaries)
    both are mortgage free
    Family home D
    held in family trust BB (my wife and I are the trustees and beneficiaries)
    mortgage free
    Going forward, we want to buy another cash flow positive property Rental Property E. And we want to restructure to give us the best assets protection possible. Loss offset ( if any) is secondary.
    Here is the our plan;
    Sell Rental Property A to family trust BB. I know this will trigger depreciation recovery but I am not worried as the depreciation claims to date was quite low.
    Discharge mortgage on Rental Property A
    Dissolve the QC - AA limited.
    Buy Rental Property E under family trust BB.
    Apply loan using Rental Property E

    As assets protection is our primary goal, do you think this is the best structure?
    What would you do differently?
    What have we missed?
    Looking forward to your opinions.

    Thanks in advance.

  2. #2
    Join Date
    Jan 2006
    Location
    Wellington
    Posts
    535

    Default

    A good question for an accountant but I will give some thoughts as a QC shareholder.
    Just a thought even though asset protection is your primary goal.
    A QC is quite a valuable asset because you can get capital out of it without paying a tax on dividends or winding up the company and you cant ever set up another one. I was thinking that a more attractive option could be you and your wife part owning the QC and the trust owning the majority remaining so that it has control. Then purchases could be made through the QC and when sales are made or cash available there are options of returning the money directly to you or through the trust or leaving it in the company.
    Doug

  3. #3
    Join Date
    Feb 2004
    Location
    Wellington
    Posts
    2,534

    Default

    IMHO...if you want better asset protection you want to have multiple trusts

    ie: Sell/gift rental A to family trust CC .....Buy Rental Property E under family trust DD.

    Not the cheapest way to do it......and perhaps more hassle than any extra protection would be worth, but you did say "best"

    Cheers
    Spaceman
    Delightfully in need of some Tender Loving Care
    Blessed are those who can give without remembering and take without forgetting
    Some things are not as they seem, nor are they otherwise

  4. #4
    Join Date
    Sep 2009
    Location
    Auckland
    Posts
    30

    Default

    Thanks Doug.
    In your opinion (don’t worry, I won’t hold you to it), does the “selling the 100% QC share to the family trust” provide the same degree of asset protection as “ selling the rental property A to the family trust”?

  5. #5
    Join Date
    Sep 2009
    Location
    Auckland
    Posts
    30

    Default

    Thanks spaceman,
    Can you please tell me what “extra protections” can one expect from multiple trusts?

  6. #6

    Default

    Why not just move the shares in your QC to your Trust?

    Same outcome and no conveyancing costs - save yourself around $1,200. And avoid depreciation recovery.

    I don't think multiple Trusts are necessary, especially if you have no debt (as it appears you don't).

    Just giving yourself extra compliance costs.

  7. #7
    Join Date
    Feb 2004
    Location
    Wellington
    Posts
    2,534

    Default

    ^^One trust = all eggs in one basket.

    If you have multiple trusts then if one trust gets in trouble, for whatever reason, the other properties in other trusts should be unaffected

    Cheers
    Spaceman
    Delightfully in need of some Tender Loving Care
    Blessed are those who can give without remembering and take without forgetting
    Some things are not as they seem, nor are they otherwise

  8. #8
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    1,986

    Default

    More structures = more costs.

    So it is often a trade off between asset protection and costs/hassle.

    What you need to look at first, is what is the current Trust protecting you from? Is it actually working for you, and are the benefits more than the cost? There is no point putting additional assets into a Trust that is not working, is already a sham or that isn't really required in the first place.

    Secondly if you are looking at putting rentals in the same Trust as your personal house, is there a risk of something happening to your rentals, that could badly affect the personal house? Generally the main risk would be from banks, who often have personal guarantees anyway, so having multiple trusts often doesn't offer any further protection from banks. Just ask yourself, if you were being made bankrupt by a bank, would you use another Trusts funds to avoid this?

    Often the simpler way of gaining asset protection is to sell the shares in the QC to the Trust
    - Be very very careful with share transfers, and there could be issues with QC status, and tax credits, so get expert advise before doing this!
    - Trust just owns shares, so can't be badly affected by other rentals. Therefore having the Trust own the shares would actually give you better asset protection then just owning the rentals in the Trust
    - No depreciation recovery, as QC isn't selling any rentals.

    Ross
    Ross Barnett, Coombe Smith Property Accountants - Hamilton
    Are you sick of your Large Auckland Accounting firm charging too much
    for rental accounts?Click Here for better advice and fair price

  9. #9
    Join Date
    Sep 2009
    Location
    Auckland
    Posts
    30

    Default

    Thank you Jedimaster, Spaceman and Ross for your advice.
    We had our Trust checked and administer by another law firm (X) from the one who set it up. Law firm (X) had confirmed that our trust is not a sham trust and we are happy to take their word for it.
    The three properties currently in the Trust are all mortgage free and we don’t intend to borrow against them. The new purchase (Rental E under the trust) will be funded by;

    • Cash in the Trust
    • RC of QC – AA limited

    We are the guarantors of the RC of QC – AA limited and we are not keen to get into more debt.
    We are warming up to the idea of selling the QC shares to Trust thanks to Jedimaster and Ross. We will investigate further and get advice.
    Do we need a lawyer to process the sale (QC shares to Trust) or an accountant will do?
    And what else have we overlooked?
    Thank you all.

  10. #10
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    1,986

    Default

    Accountant issue more than lawyer.

    Need to value shares. So basically bank, plus properties at market value, plus any other assets, less bank loans, less shareholder loans, less anyother liabilities = value of company, so then divide by number of shares.

    Watch losing tax credits! Accountant should check this

    Ross
    Ross Barnett, Coombe Smith Property Accountants - Hamilton
    Are you sick of your Large Auckland Accounting firm charging too much
    for rental accounts?Click Here for better advice and fair price


 

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