Reasons to Set Up a Trust to Buy Your Property

When you purchase a property, you can buy it in your personal name, a company name or even a trust.  The trust must be set up before hand and have a trustee to manage the trust (which could be yourself or a company you own).  Now, why should you undertake a complex procedure like this to buy a property? Well, there are several reasons why savvy investors do this and here are some of them that can help you decide whether you too should follow this strategy.

Asset protection

This is one of the top reasons why people opt for a trust to buy and hold their properties. The assets held by the trust are safe even if you have to declare personal bankruptcy. This means that your creditors can create a lien on your personal assets but not on those held through the trust. The property cannot be taken over in lieu of your debts by any creditor. Of course, there are conditions that apply, namely that the property should have been purchased via the trust a specific number of years before your bankruptcy situation. If you want to make sure that the property is protected for your future generations, this advantage makes a trust a good choice for you.

Fewer complexities in transfer

A trust makes it easy for you to ensure that the property passes on to your heirs quickly and without legal complexities in the event of your death. This is one good reason to consider if you expect someone to challenge the claim of your heirs to your assets in particular. Buying and holding your property through the trust makes your stance clear on what you want to be done with the property, and the procedure for transfer of rights is clear cut too with a trust.

Tax benefits

Of course, the tax benefits are a big plus point for buying and holding property via a trust. It may be possible to avoid a big chunk of taxes including capital gains and stamp duty when the property passes to someone within your family, provided it is held in a trust. This gives a significant financial benefit to your heirs.

Please note that it is important to decide on the buying entity before signing a contract or there could be potential implications, such as stamp duty issues. We also strongly recommend that you seek the advice of an accountant regarding tax and other financial benefits regarding trusts.

If you want more information or help with buying a property via a trust, approach a professional law firm in Queensland, Australia.

 

Conveyancing tips – changes to Queensland property laws

On Monday 1 December 2014, the Property Agents and Motor Dealers Act 2000 (PAMDA) was repealed and the following four new pieces of Queensland legislation came into force:

  • Property Occupations Act 2014
  • Motor Dealers and Chattel Auctioneers Act 2014
  • Debt Collectors (Field Agents and Collection Agents) Act 2014
  • Agents Financial Administration Act 2014

PAMDA continues to apply to relevant contracts entered into prior to 1 December.

The Real Estate Institute of Queensland released new contracts to comply with the new laws, and the new form of contract must be used for any new contract entered into.

Aside from some practical tidying up of the contract and giving it a cleaner look, there are some changes that are relevant to agents and parties buying or selling property as follows:

  1. Changes to relevant forms:
  • Form 30C Warning Statement no longer exists for residential property contracts. The contract itself now contains the warning about obtaining legal advice and an independent valuation.  It also advises that a statutory cooling off period applies.
  • Form 14 Information Sheet for the Body Corporate and Community Management Act 1997 is no longer required to be attached.
  • Form 32a lawyer’s certificate has been abolished. A buyer can now waive or shorten the statutory cooling off period with written notice to the seller.
  1. Failure to comply with technical requirements are no longer an avenue for a buyer to terminate a contract or seek compensation. Instead, a breach of the new legislation may result in a fine from the government for $22,000 for an individual and $110,000 for a corporation.
  1. The requirement of giving notice to a buyer for vacant land that cannot be lawfully used for residential purposes has been removed (where previously a buyer could terminate a contract for failure to disclose this).
  1. Finally, a practical change allowing notices under the contract to be sent by email is a welcome change.

The new contracts have also tightened up the requirements for them to be completed more fully and accurately.  An example is that it will no longer be acceptable to insert words such as ‘refer to title’ or similar in the encumbrances section.  All title encumbrances must be accurately stated in the contract.

Above are some of the main changes, but many others have also come in effect.  If you would like to find out more, please don’t hesitate to contact us.

Co-ownership – a mixed affair

Co-ownership refers to the legal relationship shared by two or more people over an interest in property. Under Queensland law, co-owners are registered as either joint tenants or tenants in common. Knowing the difference between the two and recognising which kind of co-ownership you require is key to determining your rights, interests and obligations.

Joint tenancy:

A joint tenancy means that co-owners share in the whole of the property together. No single owner can hold a separate or distinct share. Rather, all joint tenants share in the full entitlement to the property. For example, a co-owner in a joint tenancy cannot hold a 25% share over the property. Instead they are entitled to the full 100% of the property shared concurrently with the other joint tenants.

Tenancy in common:

In comparison, a tenancy in common creates distinctive and separate shares in the same property. Tenants in common may hold equal or unequal shares and typically an owner’s interest is determined by their contribution to the purchase price. Furthermore, tenants in common are free to deal with their interest separately. This is not to say co-owners can claim separate physical portions of the land. As in a joint tenancy, they still share in the complete use of the property together. This means a tenant in common may sell, gift or bequeath their interest in the property to someone else. This is not possible in a joint tenancy where co-owners do not have separate shares.

The fundamental difference: the rule of survivorship:

The defining feature of a joint tenancy, which does apply to a tenancy in common, is the right of survivorship. As a matter of law, the right of survivorship operates upon the death of a joint tenant to automatically transfer their interest to the remaining joint tenant/s.  Co-owners who share in joint tenancies are not afforded the right to transfer their interest outside of that co-ownership such as by a will or trust instrument. It is for this reason, joint tenancy is common amongst marriages, where upon one spouse’s death, their interest will transfer to the remaining spouse. It is for the same reason that a joint tenancy is considerably less favourable amongst other partnerships such as between siblings, friends or business partners. This is particularly the case in partnerships such as these where co-owners are not bound together by law, have separate lives and different interests and goals. The right of survivorship will be avoided should the joint tenancy be severed.

Which form of ownership is best for you?

To determine which form of co-ownership is right for you, parties should carefully consider what they hope to achieve from their interest in the property, consider if their goals are the same as their co-owners and evaluate how much control they intend to have over their share. Furthermore, as each form of co-ownership also carries its own tax implications, seeking professional financial advice could also be of further advantage to help determine which is the most suitable.