A Way to Protect Your Real Estate Assets

By Despina Priala | 15 May 2014

Despina Priala advises on using a trust as a way to protect your real estate assets

Q:I’m single but I’m hoping to meet the right person one day. I’ve been advised that I should buy my investment properties in a trust. How can a trust protect my assets?

A: 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 to 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 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) where courts have been allowed to look behind a trust structure and its assets at 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 at Priala Legal.

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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