Hi all. I was directed here from Somerset.com after reading this post (Actual Process of Gifting and Loaning back from Trust...)... So, firstly some recap: The OP asked if the following documents are really necessary for the arrangement to be solidified: 1. Deed of Gift; 2. Loan agreement (presumably between the Trust and a mortgagor); 3. Actual transfer of cash from Trust to owner The conclusion from that post is Yes, unequivocally Yes to that I have a couple of fundamental questions though... 1. Why is Step 3 important? 2. What if the owner's (me) intention was to gift his equity to the trust but to leave the cash there for further investments within the trust? I'm sure the answer is quite basic. Thanks in advance. Stuart
The arrangement could fall foul of Part IVA anti-avoidance rules if there is a tax benefit that arises from the scheme.
This is a legal question. A gift not given is not a gift and will fail without transfer of title. see Legal Tip 115: The Gift and Borrow Back Strategy, Part 1 Legal Tip 115: The Gift and Borrow Back Strategy, Part 1
Yes - Thats very important.And I have seen a large number of people who consider their assets "theirs" and they argue they have a right to give it all away. But fail to consider the consequences until after its done. ..The Govt and its laws dont always share that position and it might not be capable of repair. . And if its owned in a trustee capacity it may not be theirs to give too. I recently saw a family face this issue with a deceased estate. Dad transferred title prior to his death but Court found he was a trustee for his wife (it was in his name) and he had no right to give it to a son without her consent. Ordered to be transferred back to the estate. Best to start with legal advice before any gift or proposed transfers are made. There can be concessions or exemptions and also penalties (ie tax or Centrelink effects) and its wise to know these in advance. Lawyers would also be aware of the tax issues and duties etc and generally advise on that at same time.
You also have to be careful that a gifting of 'equity' is not an assignment or a declaration of trust which would trigger CGT and stamp duty.
Thanks for that link, Terry_w. I've read that discussion about creditors and possible clawbacks. For me, that is not relevant to me as the only creditor i have is the bank on my current mortgage. My intention is to explore if there were legal avenues to capture the benefits of the equity gain in the property, at the height of this market, without selling it (My family still lives here). Mortgage is $300k. Equity today would be around $800k. If I could gift the $800k to the trust and then access $800k in cash, either within the trust (preferred) or in my name, I could use it for further re-investments. This, if possible, I thought would be a better alternative to refinancing in my own name as (1) the interest won't be deductible against income from investments and besides, (2) banks were reluctant to provide much refinancing beyond the current loan level.
Yes, I agree. Once i've done my basic homework on the web (including in forums), I'll be dumb to think I know enough to do this on my own without legal assistance.
I think you might be confused about that strategy. Some people out there are advising you can 'transfer' equity to a trust by just some shuffling of documents. I say this is not possible, but even if it were this is not going to magically convert that equity into cash which could be used. The only way to get cash like this is to borrow against the property.
I didn't think there's an undiscovered magic formula either, but never ask never know.. Thanks a bunch, Terry_w. Still wondering what the smart people in the know are doing to take advantage of the current premium property valuation aside from actualising the gain (selling).
