Looking for the best ASSETS PROTECTION structure

[grasshopper]

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.

[Re@der]

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.

[spaceman]

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

[grasshopper]

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”?

[grasshopper]

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

[jedimaster]

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.

[spaceman]

^^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

[Rosco]

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

[grasshopper]

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.

[Rosco]

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

[jedimaster]

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

Hi Ross

I may be wrong but I am sure QC's have an exemption from the shareholder continuity rules for imputation credits purposes (not for tax loss purposes but this company will not have tax losses I am assuming as will have been attributed to shareholders until 31/3/2011).

So in that case I would have thought the main issue is to ensure you re-elect QC status within 63 days of the share transfer.