Hello All,
I've got a structure i've thought of and want to know if it's possible/legal before we look into this with a Solicitor/Accountant,
I have a friend that has alot of dept the has been racked up when he was young via unsecured bank loans, credit cards etc. He has defaulted on payments and it's been a long time and they have stopped chasing him as he has nothing to his name. One of these he has put himself on a payment program but it won't be paid off for years.
So first off this guy has 2 issues:
1. Bank won't loan money to someone who owes a bank money.
2. If he holds an asset in his own name, eventually they'll chase him down for this.I was thinking the following structure to allow him to buy his first property and stop it from being taken away from him.
– Setup a trust with a trustee company with his mum as sole director.
– His mum signs a Vendor Finance agreement putting the property in the company name (will need to go down Vendor finance as she is low income).
– Setup bank account in companies name when initial $10k is deposited by mum (well technically by him but the money comes from her account for the papertrail).
– He rents the property from his mum paying her the same amount as the mortgage/finance amount, effectivily doing a topup to the account every month to keep the balance at $10k.
– Mum doesn't have to do anything except sign the company tax return at the end of the year.
– In money = Out money so no tax libility (netural).
– Once his depts are cleared (or if he filed for Bankruptcy etc) and in say, 10 years, he could change the director to himself to control the trust and take over it.Anyone think this structure will hold up? The papertrail will all meet up and should look like a non related entity. He won't be listed as a Beneficiary, except via a general clause, eg the children of such and such, incase longterm funds needed to be channel'd.
His income is $1200-1500 a week clear, so i know he can service the loan and he can show a perfect rental history for the last 2 years.
How much debt is he in? Would it not be easier to use his $1200 – $1500 per week to pay down his debts and then move on in a few years time by himslef?
Luke.
Agree with Luke.
Don't try and circumvent the policies in place to straddle him with even more debt. That is why he is in the situation in the first place.
If this was set up with the intention to put property out of reach of creditors it may be able to be voided under the Bankruptcy Act if your friend later goes bankrupt.
You also have to look at uncommercial transactions. Is he paying market rent etc to the trust. Also have to look at gifts to the trust – where is the $10k now for example.
But if it was just a discretionary trust in which his role was that of a potential beneficiary then it may work. If he would go bankrupt the trustee would simply consider him, but make no distribution to him until he comes out of it.
I think Alan Bond went bankrupt 10 years ago now and his friends were providing him with gifts etc of meals at lavish restuarants etc. The trustee in bankruptcy tried to get this classed as income, but failed. His family also controlled many trusts and he was allowed to use trust assets etc too.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
My first suggesion was to pay down the depts but he only wants to pay minimum, and one of them was for a car accident that wasn't his fault so he refuses to pay.
It was more of a 'would this technically work' question then trying to work out a scam.
If setup as above, theres no proof of intention as his mum could legitimatally want to set this up for her son.
The $10k could come directly from cash and the mum could take the cash payment and pay from her own funds. Being Vendor finance, i was hoping there was no credit issue to the mum and if he stopped paying (which he wouldn't) the Vendor would just take the property back, and my friend Forfeit all his money.
The mum would likely have to give a guarantee, but being vendor finance maybe this could be avoided.
Realistically, if something does go wrong the trustee in bankruptcy are not really going to be chasing anyone for $10k as it would be considered too small and not worth the bother and expense
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Remember going the Vendor Finance route does not circumvent the fact that she cant get finance because she is on a low income.
Vendor Finance still falls under the guidelines of NCPP.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
As Richard says, if the Mum purchased with a vendor finance Instalment Contract the vendor would have to check her out as per the NCC's Responsible Lending requirements.
She could of course take control of a property with a vendor finance Lease/Option, if all involved need to circumvent the NCC but it's very possible they won't get an Option term long enough to achieve what they're after. Not a great Lease/Option fan myself but with enough due diligence and a long enough Option term it may work.
However I agree with the above comments that he should repay his debts first.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
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