Burn the Banks
by Murray Dawes, Editor, Slipstream Trader
Last Thursday we watched the market open up 41 points on the back of a positive lead from the US markets. By 10:30am the high was in and the ASX200 turned down and sold off in a straight line for 100 points closing down 58 points at 4594.
Asian markets also came in for a belting with Japan down 2.4% and Hong Kong down 1.5% over the day and the release of Toll Holdings results at Midday only saw an acceleration of the selling pressure with Toll closing the day down 18% after missing earnings expectations by a long shot.
An article in the UK Telegraph stated that Greece's Deputy PM had lashed out at Germany over war-time atrocities and accused Italy of cooking its books. This seems like a fairly dumb thing to do when you are hoping that Germany might hand over some cash to help you out of the hole you've dug yourself.
But no, instead of grovelling the deputy PM said "They (the Nazis) took away the gold that was in the bank of Greece, and they never gave it back. They shouldn't complain so much about stealing and not being very specific about economic dealings". Nice one.
I'm guessing the Germans aren't going to be too impressed by the 'Nazi' reference.
The Australian Dollar also came under pressure which points to offshore funds possibly unwinding the carry trade which would have added to the selling pressure here.
The most interesting thing I read this week was about the beginnings of capital flight out of Greece. According to the Wall Street Journal, wealthy Greeks are moving their cash out of Greece and sending it offshore due to their fear of increased government scrutiny on assets and the possibility of a run on the banks should Greece be forced to go cap-in-hand to the IMF.
$8 Billion Euro has moved out of Greece to accounts abroad since December, which is a substantial chunk of the $30 Billion Euro under management in Greeks private banks.
I'm thinking this is probably not a good sign...
Also in Greece the general strike has spilled over into violence, with clashes between hooded youths and riot police in Athens. Chants of "burn the banks" were heard. All of this before Greece has even started tightening their belt.
In other news during the week we have seen American consumer confidence fall off a cliff and new home sales plummet 11% on the month in the U.S. This fall is due to the end of the $8,000 credit given to home buyers. Sound familiar?
This news is not the sign of an economy on the mend. The US markets were hit by this news but recovered later in the week unlike our market which has continued to sell off.
Technically, In the ASX200 The downtrend from January appears to be reasserting itself after retracing 50% of the sell-off in the last couple of weeks and this makes the next few weeks price action very important.
Check out - http://www.dailyreckoning.com.au/images/20100226asx200chart1.png
Our market has been in a long sideways consolidation for the past 5 months. We have had 2 false breaks of either edge of the range; with the most recent being the false break of the 4500 low from early November. This false break has seen a rally back to the midpoint of the range which I call the Point of control of the whole structure at 4700. This is a very important point and is often resistance or support before an attempt to break out of the range.
If the market were to turn back up and take out this 4700 area on good volume, you could be confident that the uptrend of the past year had reasserted itself and you could expect a move to the high of the distribution at 4950 and from there potentially a rally to new highs for this uptrend.
Conversely, if the market were to continue to sell-off over the next few weeks and then bust through the recent lows around 4464, there is the potential that this could signal the failure of the last 5 months range and also the end of the uptrend that has been in place for the past year.
The 10 day/35 day moving average is showing an intermediate downtrend for only the second time since the rally began a year ago. The first time was a false signal but this time may be different.
If we do sell-off below 4464 we could see some dramatic panic selling as any new long positions of the past 5 months are cleared out and the long term downtrend of the past few years rears its head. There is no reason why the market couldn't start a downtrend from there that heads towards the lows from March 2008.
Fundamentally I believe this is what should ultimately occur and with the news that's floating around at the moment there is no reason why this won't be the case.
Where the catalyst will come from to reignite the fear in the market is anyone's guess, but there are so many to choose from now, in my opinion it's only a matter of time.
For example the front page of the Wall Street Journal said that "Spain is the real test case for the Euro". With 19% unemployment and a couple of years of negative growth in a row it doesn't take much imagination to see that Spain is in a lot of trouble. The cracks in the Euro are getting bigger and bigger by the day.
China is the other big area of concern. Joint research by Holdways and Knight Frank showed the average prices of new homes in urban Beijing, Shanghai, and Shenzhen were up 66%, 68% and 51% respectively in November, from a year earlier. This sounds a lot like a bubble to me. And when it pops Australia is going to hear it loud and clear.
The US has a huge problem brewing in their commercial real estate. The Congressional Oversight Panel released a report into "Commercial Real Estate Losses and the Risk to Financial Stability". In it they said that "over the next few years, a wave of commercial real estate loan failures could threaten America's already weakened financial system. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present "underwater". Losses at banks alone could range as high as $200-$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010."
"A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty office complexes, hotels, and retail stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment. Banks that suffer, or are afraid of suffering, commercial mortgage losses could grow even more reluctant to lend, which could in turn further reduce access to credit for more businesses and families and accelerate a negative economic cycle".
When looking at the situation this way it's hard to come up with an argument about how the world is going to muddle through from here without suffering another crisis and another dip back into recession.
This rally has always had a time limit on it and we have said over and over again that it was due to government intervention anyway. The Keynesian game of borrowing more and more money to prop up the economy cannot possibly go on ad infinitum. None of the politicians will ever admit this of course because it is in their interests to borrow against your future to make themselves look like heroes and so they can act like they are "doing" something to help us.
But people, by and large, aren't stupid. They know what's going on. And the really clever ones are moving now to protect themselves before the music stops.
Murray Dawes
Editor, Slipstream Trader
for Money Morning Australia
Sunday, February 28, 2010
Are we getting smarter with our credit ????
Savvy consumers shun ATMs, credit cards
Reserve Bank statistics
• Aussie consumers are being increasingly savvy with their finances. Cardholders are using credit cards more often but paying off before the due date. And consumers are avoiding bank fees, preferring to get cash out on their debit cards with retailers.
• Transactions made with debit cards in December were up 10.8 per cent on a year ago, almost three times the growth rate of credit cards.
• The average outstanding balance on credit cards stands at a record $3250.60, up 3.3 per cent on a year ago. The number of purchases made on credit cards hit a record $21.1 billion in December, up 5.6 per cent on a year ago.
• Australians are using ATMs less often to withdraw cash, preferring to get cash out at retailers and other businesses. The number of cash withdrawals made at ATMs was down a record 7 per cent in December while cash-out only transactions with debit cards were up 7 per cent.
• On average each Australian used their debit cards a record 6.4 times in December. And we used our credit cards 10.6 times on average in December, slightly less than the record in December 2004.
What does it all mean?
• It may have been the US financial crisis. Or it may reflect better education. But Aussie consumers are being increasingly savvy with their finances. While consumers left more outstanding debt on their credit cards in December, they are more likely to pay off credit card debt without incurring interest charges or use debit cards instead. Aussie consumers are avoiding bank fees, using their own bank’s ATM or taking out cash at retailers. And credit card customers are clearly not keen on getting cash out on their cards.
• The average outstanding debt on credit cards is growing at the fastest pace in three years, although it still pales with growth rates set in previous years. Overall the average balance on credit cards is up just over 3 per cent on a year ago, but the average balance of cards accruing interest is rising at half that pace.
• An interesting trend is that Australians are using ATMs less often, preferring to get cash out with purchases at retailers. In December the number of withdrawals made at ATMs was down almost 7 per cent on a year ago. Not only was this the biggest drop on record but also the rate of decline has been accelerating since April last year. But cash-out only transactions made at businesses were up by just over 7 per cent on a year earlier.
• In part consumers may be using ATMs less often because of security fears. But the attraction of reduced fees and increased convenience may both be prompting consumers to get cash out when they are doing their shopping.
What do the figures show?
• Figures released from the Reserve Bank show that the average credit card balance stood at a record $3,250.60 in December, up $54.20 on November. The average credit card balance is up 3.3 per cent on a year earlier, the strongest growth in 13 months. And growth of a smoothed measure of credit card debt – the rolling 12-month average has lifted from a 15-year low of 0.5 per cent to 0.6 per cent in December.
• Of credit cards attracting interest charges, the average outstanding balance rose by just $7.40 to $2,303.00. The average balance accruing interest is 1.4 per cent higher than a year ago. The smoothed (rolling annual average) measure shows 1.3 per cent growth in the average balance – the slowest growth on record.
• The number of credit card cash advances fell by 2.7 per cent in November and was down by 15.3 per cent on a year earlier. Credit card advances have been consistently falling in annual terms for 32 months.
• The number of purchases made on credit cards rose by 15.2 per cent in December to stand 4.1 per cent higher than a year ago. And the value of purchases made on credit cars in December was up 5.6 per cent on a year ago.
• The value of purchases made on debit cards (excludes cash out) totalled a record $11.8 billion in December, up 6.9 per cent on a year ago. The number of debit card purchases was up by 11.1 per cent on a year ago.
• The value of all transactions made on debit cards hit a record $14 billion in December, up 6.8 per cent on a year ago. The number of transactions was up 10.8 per cent on a year ago.
• The number of withdrawals made at customers ‘own bank’ ATMs in December was up 3.7 per cent on a year ago. But withdrawals made at ‘other bank’ ATMs was down 19.2 per cent. All ATM withdrawals were down a record 6.9 per cent on a year ago.
• ‘Cash out’ only transactions made with debit cards in December were up 7.3 per cent on a year ago.
What is the importance of the economic data?
• The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
What are the implications for interest rates and investors?
• The new era of consumer conservatism continues. Aussie consumers no longer blindly put purchases on credit cards, preferring to use their own funds instead. Cardholders also appear to be active in keeping g fee and interest rate charges down, looking for their best options.
• Both banks and retailers must stay on top of the trends in consumer behaviour. Whether it was the US financial crisis that has caused consumers to change behaviour remains to be seen. But with unemployment falling and confidence levels near record highs, the conservatism of consumers is an interesting contrast.
• The Reserve Bank has highlighted the conservative behaviour of consumers. If spending growth remains soft in coming months then the Reserve Bank has more reasons to stay on the interest rate sidelines.
Source Craig James, Chief Economist, CommSec
Reserve Bank statistics
• Aussie consumers are being increasingly savvy with their finances. Cardholders are using credit cards more often but paying off before the due date. And consumers are avoiding bank fees, preferring to get cash out on their debit cards with retailers.
• Transactions made with debit cards in December were up 10.8 per cent on a year ago, almost three times the growth rate of credit cards.
• The average outstanding balance on credit cards stands at a record $3250.60, up 3.3 per cent on a year ago. The number of purchases made on credit cards hit a record $21.1 billion in December, up 5.6 per cent on a year ago.
• Australians are using ATMs less often to withdraw cash, preferring to get cash out at retailers and other businesses. The number of cash withdrawals made at ATMs was down a record 7 per cent in December while cash-out only transactions with debit cards were up 7 per cent.
• On average each Australian used their debit cards a record 6.4 times in December. And we used our credit cards 10.6 times on average in December, slightly less than the record in December 2004.
What does it all mean?
• It may have been the US financial crisis. Or it may reflect better education. But Aussie consumers are being increasingly savvy with their finances. While consumers left more outstanding debt on their credit cards in December, they are more likely to pay off credit card debt without incurring interest charges or use debit cards instead. Aussie consumers are avoiding bank fees, using their own bank’s ATM or taking out cash at retailers. And credit card customers are clearly not keen on getting cash out on their cards.
• The average outstanding debt on credit cards is growing at the fastest pace in three years, although it still pales with growth rates set in previous years. Overall the average balance on credit cards is up just over 3 per cent on a year ago, but the average balance of cards accruing interest is rising at half that pace.
• An interesting trend is that Australians are using ATMs less often, preferring to get cash out with purchases at retailers. In December the number of withdrawals made at ATMs was down almost 7 per cent on a year ago. Not only was this the biggest drop on record but also the rate of decline has been accelerating since April last year. But cash-out only transactions made at businesses were up by just over 7 per cent on a year earlier.
• In part consumers may be using ATMs less often because of security fears. But the attraction of reduced fees and increased convenience may both be prompting consumers to get cash out when they are doing their shopping.
What do the figures show?
• Figures released from the Reserve Bank show that the average credit card balance stood at a record $3,250.60 in December, up $54.20 on November. The average credit card balance is up 3.3 per cent on a year earlier, the strongest growth in 13 months. And growth of a smoothed measure of credit card debt – the rolling 12-month average has lifted from a 15-year low of 0.5 per cent to 0.6 per cent in December.
• Of credit cards attracting interest charges, the average outstanding balance rose by just $7.40 to $2,303.00. The average balance accruing interest is 1.4 per cent higher than a year ago. The smoothed (rolling annual average) measure shows 1.3 per cent growth in the average balance – the slowest growth on record.
• The number of credit card cash advances fell by 2.7 per cent in November and was down by 15.3 per cent on a year earlier. Credit card advances have been consistently falling in annual terms for 32 months.
• The number of purchases made on credit cards rose by 15.2 per cent in December to stand 4.1 per cent higher than a year ago. And the value of purchases made on credit cars in December was up 5.6 per cent on a year ago.
• The value of purchases made on debit cards (excludes cash out) totalled a record $11.8 billion in December, up 6.9 per cent on a year ago. The number of debit card purchases was up by 11.1 per cent on a year ago.
• The value of all transactions made on debit cards hit a record $14 billion in December, up 6.8 per cent on a year ago. The number of transactions was up 10.8 per cent on a year ago.
• The number of withdrawals made at customers ‘own bank’ ATMs in December was up 3.7 per cent on a year ago. But withdrawals made at ‘other bank’ ATMs was down 19.2 per cent. All ATM withdrawals were down a record 6.9 per cent on a year ago.
• ‘Cash out’ only transactions made with debit cards in December were up 7.3 per cent on a year ago.
What is the importance of the economic data?
• The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
What are the implications for interest rates and investors?
• The new era of consumer conservatism continues. Aussie consumers no longer blindly put purchases on credit cards, preferring to use their own funds instead. Cardholders also appear to be active in keeping g fee and interest rate charges down, looking for their best options.
• Both banks and retailers must stay on top of the trends in consumer behaviour. Whether it was the US financial crisis that has caused consumers to change behaviour remains to be seen. But with unemployment falling and confidence levels near record highs, the conservatism of consumers is an interesting contrast.
• The Reserve Bank has highlighted the conservative behaviour of consumers. If spending growth remains soft in coming months then the Reserve Bank has more reasons to stay on the interest rate sidelines.
Source Craig James, Chief Economist, CommSec
Tuesday, February 16, 2010
ASSETS AT RISK FROM "FRIVOLOUS CREDITORS"
Protecting Your Assets by Ken Raiss Director of Chan & Naylor Platinum
Thanks Ken for identifying this very real risk
Protecting your assets against frivolous creditors is increasingly becoming a common concern. It has been quoted that Australia is closely following the trend of USA litigation numbers with NSW, Victoria and Queensland only just behind California where 1 in 3 people in the USA either sue someone or are being sued by someone.
Traditionally people have used trusts to protect their assets. A trust is useful in this regard as the individual does not own the asset, it is owned by the trust. Therefore if the individual is sued they have no assets to lose. The individual controls the trust but has no ownership.
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 usually is the shareholder so they could lose the shares in a successful lawsuit and therefore the assets. The other problems with a company are it does not receive the 50% general Capital Gains Tax discount, it is inflexible on 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. Land tax is also a concern in that NSW does not receive the land tax threshold and Victoria only receives a $20,000 threshold.
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.
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 an 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?
Chan & Naylor have developed four strategies that can assist 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. All four strategies do not trigger capital gains tax and in most cases does not trigger any stamp duty on the underlying assets.
Equity Shift
This solution allows an individual to shift 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 investor trust, while still allowing the individual to claim any negative gearing and 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 shifts the equity into the property investor trust where it is protected. No CGT or stamp duty on the assets.
Equity Bank Trust
This trust structure and relevant agreements was developed to assist clients with a more substantial asset base including properties. The EBT takes on the role of a lender and places a second mortgage on your assets thereby reducing to nil your equity. 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 stamp duty on the assets is triggered. Depending on the second mortgage documentation, there may be a stamp duty on the mortgage document, which is a small percentage of what would be the case on the asset.
Contractual Will
A will is essentially your wishes on how your assets are to be distributed on your death. If you are sued the will cannot protect your wealth. If a court action by unsecured creditors successfully takes your wealth then the will has nothing to pass on. The contractual will creates a legal binding obligation to move ownership of your assets and therefore your net wealth on death to a specially designed bloodline trust to ensure your assets stay within the family and not to in-laws etc. If sued prior to death, then it is this contractual obligation that is used to protect the assets in that you effectively have passed on the ownership of the assets at the time of the contract. No CGT or stamp duty on the assets. There may be a small stamp duty on the documentation depending on the location of the assets as different states apply stamp duty on documentation.
Absolute Entitled Trust
A more complex strategy for those with significant assets including business assets or the shareholding in a company operating the business. This strategy allows the transfer of assets to a trust without CGT and also maintains the pre CGT status of any assets, a very valuable benefit. This strategy creates asset protection, as the assets are now in a trust. Once in the trust any income or profits are capable of being directed to other individuals or trusts. Most states other than Queensland would have no stamp duty applied.
Main Residence Trust
As an additional strategy, clients who believe they are in a high litigation risk environment can purchase their family home in a trust and still receive the normal main residence tax benefits including zero stamp duty. In some states a second stamp duty may apply but this cost may be offset by the other advantages. Interest deduction on borrowed moneys used to purchase the property would normally not be deductible, but maybe, depending on the circumstances.
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.
If you want to discuss any of the strategies please contact Chan & Naylor on 02 9391 500 who will arrange a suitable time to meet with one of our team.
Disclaimer
The above is general information only and is intended as educational material. Chan & Naylor 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.
This article was written by Ken Raiss Director of Chan & Naylor Platinum
Thanks Ken for identifying this very real risk
Protecting your assets against frivolous creditors is increasingly becoming a common concern. It has been quoted that Australia is closely following the trend of USA litigation numbers with NSW, Victoria and Queensland only just behind California where 1 in 3 people in the USA either sue someone or are being sued by someone.
Traditionally people have used trusts to protect their assets. A trust is useful in this regard as the individual does not own the asset, it is owned by the trust. Therefore if the individual is sued they have no assets to lose. The individual controls the trust but has no ownership.
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 usually is the shareholder so they could lose the shares in a successful lawsuit and therefore the assets. The other problems with a company are it does not receive the 50% general Capital Gains Tax discount, it is inflexible on 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. Land tax is also a concern in that NSW does not receive the land tax threshold and Victoria only receives a $20,000 threshold.
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.
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 an 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?
Chan & Naylor have developed four strategies that can assist 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. All four strategies do not trigger capital gains tax and in most cases does not trigger any stamp duty on the underlying assets.
Equity Shift
This solution allows an individual to shift 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 investor trust, while still allowing the individual to claim any negative gearing and 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 shifts the equity into the property investor trust where it is protected. No CGT or stamp duty on the assets.
Equity Bank Trust
This trust structure and relevant agreements was developed to assist clients with a more substantial asset base including properties. The EBT takes on the role of a lender and places a second mortgage on your assets thereby reducing to nil your equity. 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 stamp duty on the assets is triggered. Depending on the second mortgage documentation, there may be a stamp duty on the mortgage document, which is a small percentage of what would be the case on the asset.
Contractual Will
A will is essentially your wishes on how your assets are to be distributed on your death. If you are sued the will cannot protect your wealth. If a court action by unsecured creditors successfully takes your wealth then the will has nothing to pass on. The contractual will creates a legal binding obligation to move ownership of your assets and therefore your net wealth on death to a specially designed bloodline trust to ensure your assets stay within the family and not to in-laws etc. If sued prior to death, then it is this contractual obligation that is used to protect the assets in that you effectively have passed on the ownership of the assets at the time of the contract. No CGT or stamp duty on the assets. There may be a small stamp duty on the documentation depending on the location of the assets as different states apply stamp duty on documentation.
Absolute Entitled Trust
A more complex strategy for those with significant assets including business assets or the shareholding in a company operating the business. This strategy allows the transfer of assets to a trust without CGT and also maintains the pre CGT status of any assets, a very valuable benefit. This strategy creates asset protection, as the assets are now in a trust. Once in the trust any income or profits are capable of being directed to other individuals or trusts. Most states other than Queensland would have no stamp duty applied.
Main Residence Trust
As an additional strategy, clients who believe they are in a high litigation risk environment can purchase their family home in a trust and still receive the normal main residence tax benefits including zero stamp duty. In some states a second stamp duty may apply but this cost may be offset by the other advantages. Interest deduction on borrowed moneys used to purchase the property would normally not be deductible, but maybe, depending on the circumstances.
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.
If you want to discuss any of the strategies please contact Chan & Naylor on 02 9391 500 who will arrange a suitable time to meet with one of our team.
Disclaimer
The above is general information only and is intended as educational material. Chan & Naylor 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.
This article was written by Ken Raiss Director of Chan & Naylor Platinum
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