Common Issues that Creep into Contracts of Sale for Properties

By
20/03/2014


Despina Priala explains some of the common issues that creep into contracts of sale for properties

Question: I own three properties, including the house I live in and the premises of my company in Brisbane, which is in a house, not an office block. All properties are in my name. I’m considering getting married but want to cover my bases in case things don’t work out in the future, so I’m considering trusts.

I’m still not sure about a few things. If I was to get divorced, would my then ex-wife still get half my properties if they were set up in trust? Generally speaking, are trusts ‘guaranteed’ to protect my assets if set up properly, or at least protect them more than having them in my name? 

I realise that this would be dependent on possible conditions in a prenuptial agreement, but I’m also concerned because I’ve been living with my partner in a de facto relationship for almost five years now and, even though I don’t expect her to leave me, if the relationship soured unexpectedly I suspect that there would be a few things she could claim.

Answer: This question poses some very complex and detailed legal issues, including trusts, family law, property, stamp duty (or duties) and company law. It is a question that cannot be answered with any degree of certainty here because the answer largely depends upon a number of factors, which for the purposes of this article cannot be canvassed thoroughly. However, what I can do is provide some general guidelines and perhaps point you in the right direction.

Generally, there are a number of ways to protect certain interests or property you may hold from unwanted creditors, bankruptcy, possible family law disputes and the like. This includes purchasing or holding real property under a structure commonly referred to as ‘trust’. Trusts come in different types, including unit trusts and discretionary trusts.

A trust is created with a trustee or trustees appointed to control the trust and its assets in accordance with the terms of the trust deed, and beneficiaries are established as part of the trust, who ultimately benefit from the trust assets. The trustee of a trust can be an individual or individuals or a company.

When a property is owned by a trust, it is held in the name of the trustee on trust for the beneficiaries of that trust. In other words, the beneficiaries are the ones that are ultimately entitled to the beneficial interest in the property. Generally, trusts have a lifespan of 80 years, unless terminated or wound up earlier.

Property held on trust can essentially defeat claims from creditors, the trustee in bankruptcy and the like, because it is an asset, not owned by the individual concerned but by the trust held for the beneficiaries of such trust. 

When creating a trust it is always important to obtain the right advice as to the appointment of the trustee, beneficiaries to be included, and the terms of the trust itself.

The protection mechanism that a trust can offer is not, however, guaranteed, and the court may look beyond the intention of the trust, the circumstances surrounding the creation of the trust, and other factors relevant to any particular claim concerning a trust asset by a third party. Each case will be determined on its merits.

The law is a moving beast, as I often tell my clients, and in recent times there have been some instances (albeit limited) in which courts have been allowed to look behind a trust structure and its assets as to whether such assets should form part of property settlement proceedings between parties.

It is therefore extremely important that when you are considering transferring real property or purchasing property using a trust structure (or any other structure for that matter), you obtain legal advice from a solicitor experienced in this area, as to whether this is the best course of action for you given your individual circumstances, and whether you will, or are likely to achieve, the outcome you desire.

Despina Priala Despina Priala is principal of Priala Legal. She can be contacted at despina@prialalegal.com.au or on 07 5527 8796.

Disclaimer: The information in this article is of a general nature only and should not be relied upon as legal advice. You should seek advice for your particular circumstances before entering into any transaction.

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