Here is a tip for young players.
When purchasing property consider the 'structure' of the ownership of the property and the short term and long term asset protection issues.
structure doesn't necessarily mean ownership via a trust structure. When a couple are purchasing property they should consider whether to buy in in one name or both names. If both names then whether joint tenants or tenants in common. If tenants in common then equal shares or unequal shares.
From what I have seen the consequences of co-ownership is rarely considered. The co-owners may ask the lawyer what the difference is between TIC and JT and they may decide on the spot without considering the consequences.
When deciding, from an asset protection point of view you should consider:
Bankruptcy
Incapacity
death
family law separation
Generally the home should be owned in the name of the spouse who is less at risk of being sued. Anyone in business is at risk, no matter what the business is. But this leads to different asset protection risks.
e.g. A and B buy the property in A's name only as B is a business operator. B doesn't have any legal interest in the property. What this means is that A could:
Mortgage it
Sell it
transfer it as a gift
lease it
leave control to someone else by appointing an attorney
leave it to anyone in A's will.
If A and B buy the prooperty and then B is keen on investing and A is not then A may not agree to increasing the loan on the property for further investing.
A and B may have a dispute and A could cut B out of the will and leave it to the RSPCA.
A could appoint her mother as attorney and then suffer an accident losing capacity. B now has to deal with the mother in law.
A could later go bankrupt and lose the whole property.
A and B could divorce. For the family law proceedings A may be able to show more contributions for this property - B had nothing to do with it.
A may enter into a long term lease of the property without B's knowledge - especially if commerial.
A may decide to set up a LOC to lend money to uncle Harry who has a great idea to manufacture and produce Yogurt made out of organic Yak milk.
Solution - partial - is that B could lodge a caveat noting B's interest in the property due to contrbibtions to purchase price or going costs etc. But this then dilutes the asset protection of the property. But A could still leave the property to others in her will.
Solution - but in joint names. Not ideal as either going bankrupt would mean lose of that person's interest. Go 99%/1% of title? This will mean both have to go on the loan - bad asset protection - yet B only owns 1%, but is liable for the whole loan. Also eats into serviceability.
If they do buy jointly then JT or TIC? Depends. if someone is likely to challenge the will then using JT will mean the property doesn't pass via the will but automatically on death. This can be good, but what if both A and B die in the same accident? The property will pass outside the will from the eldest to the youngest and then it will go via the will of the youngest - if no will then the intestacy laws based on the youngest person as the owner.
Imagine A and B have children from previous marriages. A is older. Both A and B dies in a car accident, death is instant so it is presumed that A dies first. B inherits A's share of the property and B has brief ownership of the whole property. The property then goes via B's will to her children and A's children miss out. This could possibly be challenged but court cases like this cost a lot.
Imagine also what could happen if A and B own property as JT. B is just about to become bankrupt because the business fails. A suddently dies in a car accident 1 day before B becomes bankrupt. B automatically inherits the whole property and then next day the trustee in bankruptcy takes control and sells the property giving the whole proceeds to creditors.
With JT there is no opportunit to leave one's share via a testamentary trust. So A and B could own an expensive property with large rental income. A dies and B inherits automatically. If they had owned as TIC A could leave her share to a testamentary discretionary trust. So if A died B would own 50% in own name and 50% in a trust. The income from the trust could then be diverted to children who each would get $20k pa tax free (s102AG). This could save a fortune each year as well as provide asset protection if B later when bankrupt B would lost 50% of the property instead of 100%.
There are heaps of things to consider above, but also other factors such as land tax, income tax, CGT, social security, etc.
As you can imagine there is no one right way or wrong way to structure thing as it will depend on the situation of each person/couple and everybody will have slightly different requirements.
When purchasing property consider the 'structure' of the ownership of the property and the short term and long term asset protection issues.
structure doesn't necessarily mean ownership via a trust structure. When a couple are purchasing property they should consider whether to buy in in one name or both names. If both names then whether joint tenants or tenants in common. If tenants in common then equal shares or unequal shares.
From what I have seen the consequences of co-ownership is rarely considered. The co-owners may ask the lawyer what the difference is between TIC and JT and they may decide on the spot without considering the consequences.
When deciding, from an asset protection point of view you should consider:
Bankruptcy
Incapacity
death
family law separation
Generally the home should be owned in the name of the spouse who is less at risk of being sued. Anyone in business is at risk, no matter what the business is. But this leads to different asset protection risks.
e.g. A and B buy the property in A's name only as B is a business operator. B doesn't have any legal interest in the property. What this means is that A could:
Mortgage it
Sell it
transfer it as a gift
lease it
leave control to someone else by appointing an attorney
leave it to anyone in A's will.
If A and B buy the prooperty and then B is keen on investing and A is not then A may not agree to increasing the loan on the property for further investing.
A and B may have a dispute and A could cut B out of the will and leave it to the RSPCA.
A could appoint her mother as attorney and then suffer an accident losing capacity. B now has to deal with the mother in law.
A could later go bankrupt and lose the whole property.
A and B could divorce. For the family law proceedings A may be able to show more contributions for this property - B had nothing to do with it.
A may enter into a long term lease of the property without B's knowledge - especially if commerial.
A may decide to set up a LOC to lend money to uncle Harry who has a great idea to manufacture and produce Yogurt made out of organic Yak milk.
Solution - partial - is that B could lodge a caveat noting B's interest in the property due to contrbibtions to purchase price or going costs etc. But this then dilutes the asset protection of the property. But A could still leave the property to others in her will.
Solution - but in joint names. Not ideal as either going bankrupt would mean lose of that person's interest. Go 99%/1% of title? This will mean both have to go on the loan - bad asset protection - yet B only owns 1%, but is liable for the whole loan. Also eats into serviceability.
If they do buy jointly then JT or TIC? Depends. if someone is likely to challenge the will then using JT will mean the property doesn't pass via the will but automatically on death. This can be good, but what if both A and B die in the same accident? The property will pass outside the will from the eldest to the youngest and then it will go via the will of the youngest - if no will then the intestacy laws based on the youngest person as the owner.
Imagine A and B have children from previous marriages. A is older. Both A and B dies in a car accident, death is instant so it is presumed that A dies first. B inherits A's share of the property and B has brief ownership of the whole property. The property then goes via B's will to her children and A's children miss out. This could possibly be challenged but court cases like this cost a lot.
Imagine also what could happen if A and B own property as JT. B is just about to become bankrupt because the business fails. A suddently dies in a car accident 1 day before B becomes bankrupt. B automatically inherits the whole property and then next day the trustee in bankruptcy takes control and sells the property giving the whole proceeds to creditors.
With JT there is no opportunit to leave one's share via a testamentary trust. So A and B could own an expensive property with large rental income. A dies and B inherits automatically. If they had owned as TIC A could leave her share to a testamentary discretionary trust. So if A died B would own 50% in own name and 50% in a trust. The income from the trust could then be diverted to children who each would get $20k pa tax free (s102AG). This could save a fortune each year as well as provide asset protection if B later when bankrupt B would lost 50% of the property instead of 100%.
There are heaps of things to consider above, but also other factors such as land tax, income tax, CGT, social security, etc.
As you can imagine there is no one right way or wrong way to structure thing as it will depend on the situation of each person/couple and everybody will have slightly different requirements.