Viewing 20 posts - 1 through 20 (of 33 total)
  • Profile photo of dangermouse99dangermouse99
    Participant
    @dangermouse99
    Join Date: 2004
    Post Count: 88

    Hello
    MY accountant has suggested I setup a trust and trustree for my IP portfolio im starting which I believe is the best way forward.
    The only thing is I really dont understand how it works and all the ins and outs, it all goes over my head when it is explained to me
    Can anyone explain to me more about trusts etc in lamen terms or point me to material that I can read and understand.
    Many thanks
    Dean

    Profile photo of Istvan051Istvan051
    Member
    @istvan051
    Join Date: 2005
    Post Count: 221

    I have quite a few posts in my history about trusts. Also TerryW.

    They are quite complex but as your learning think of it as a big story with heaps of differing lines and you will understand after a while.

    Trustee, beneficiaries, appointers, executors, ect have different roles, powers and responsibilities.

    Or buy yourself a book on trusts or read online, they can save you thousands if you are serious about using them.

    Profile photo of jmsracheljmsrachel
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    @jmsrachel
    Join Date: 2012
    Post Count: 711

    Dangermouse, I'm in your boat! Accountant has told me to setup a trust for my Investment properties. I think it's a good idea but it is so confusing. You don't want to get it wrong cause it could really cost you.

    Profile photo of dangermouse99dangermouse99
    Participant
    @dangermouse99
    Join Date: 2004
    Post Count: 88

    Thanks guys, I trust my accountant is pointing me in teh right direction, but I want to know waht im doing though rather than just agreeing and sating yes. Ill try and find your prevous posts thanks Istvan051, hopefully that will help also

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    A trust is where A owns something for B.

    Easiest way to understand is to think of a parent opening a bank account for a 2 year old. The parent is the legal owner of the account, title is in the name of the parent. The parent is the trustee. But it is the 2 yr old who really owns the money. 2 yr is the beneficial owner or the beneficiary.

    So a trust is where the legal ownership is separated from the beneficial ownership.

    If mum goes bankrupt can they take the money in the account? Generally not because she is just holding it for 2 yr old.

    Similar with property. You will have a trustee, which could be a company or a person. But you will also have many beneficiaries. The trustee just owns the property, legally, for all the beneficiaries of the trust.

    Where it is good is that the income of the trust can go to any beneficiary (under a discretionary trust). So the trustee (which you want to be or to control) decides to distribute the income to the lowest tax payers of the group – the potential beneficiaries may be hundreds of people but the ones that control the trust will generally limit the distirbutions to benefit their close family.

    It is good with bankruptcy too. Because if any one beneficiary were to go bankrupt the trustee would simply not give them any money while they are bankrupt – otherwise it would go to creditors. If the trustee were to go bankrupt then the trust assets don't belong to them so they are generally not able to be taken.

    But if you are looking at buying real property then there are many things to consider – trusts generally pay more land tax. The trust is a separate tax entity so any loss cannot be used to offset your personal income. Also trust taxation law is very complex so higher fees.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    helin16
    Participant
    @helin16
    Join Date: 2009
    Post Count: 9

    Same here!

    I've been suggested to setup a family trust(as I have one child) by my accountant.
    I've asked around and did some research on the net, it all seems to be a bit confusing for me. There seems to be a few types of trusts around:

    • Family Trust
    • Discretionary Trusts
    • Discretionary  Family Trust?????
    • Unit trusts
    • Hybrid Trusts

    I've a couple of negative geared IPs and a few positive gear IPs, and both my wife and I are just on an average income.
    Which one should I go? Can anyone explain a bit more?

     

    Many thanks

    Lin

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Lin. Why do you want a trust. Ie what are you trying to achieve ?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    helin16
    Participant
    @helin16
    Join Date: 2009
    Post Count: 9

    Thanks a lot for the prompt reply, Terry!

    Frankly, I really don’t know why I wanted a trust. It was just my accountant suggesting to me about this, saying it could protect myself and my family assets as such, because I have one child, I could pass my assets to her so and so.

    So far, I am trying to buy and hold positive geared properties and retire early, but casually I have bought a couple of negative geared properties as well, as they are under market value and I needed the equity. and my accountants was saying that I could save TAX on trust as well??

    Cheers!
    Lin

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Confusing!

    Trust assets don't form part of your estate so you cannot leave them via a will but this may have some beneficial aspects if in future your will would be challenged (not effective in NSW though) and/or your child was bankrupt at the time of your death. So there is this estate planning aspect.

    Tax minimisation involved the trustee distributing income to the lowest income tax beneficiiary of the group to save tax. But this only is effective if the trust has an income. If the trust is buying residential property then it may be 10 years or so before there is an income to distirbute and in the meantime losses mount up and these cannot be used to offset individual taxes. Must also factor in extra land tax.

    Asset protection is greatly improved by holding assets in a discretionary trust because no one beneficiary has any fixed entitlement to the trust assets. But transferring existing proeprty to a trust will significantly weaken the asset protection aspect and also cost in terms of stamp duty and CGT and legals and new loans too.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Scott No MatesScott No Mates
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    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    Terry, what do you mean by ‘extra land tax’? Is it not just the loss of the threshold or are there additional taxes on top of the standard rates which would apply?

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Sorry, yes not really extra but in NSW no land tax free threshold for most trusts so a trustee may end up paying land tax where an individual wouldn't/

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    Thanks Terry – not a biggy when you consider a land tax clause in commercial leases with calculations based on a single holding basis.

    Profile photo of Daneo79Daneo79
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    @daneo79
    Join Date: 2012
    Post Count: 31

    I haven’t done this yet and don’t need to yet but I was told by a mentor that you can link trusts.
    I think you add the trust as a beneficiary?
    So the windfall from one trust can pay for the debt of another.
    This would be used if someone had many properties,positive and negatively geared, and didn’t want to hold them all in one (trust) basket

    Can anyone validate this or add any information?

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    That is correct. One trust can distribute to another but there are complex rules to comply with. And If your existing are not in a trust already then this won’t work

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Daneo79Daneo79
    Participant
    @daneo79
    Join Date: 2012
    Post Count: 31

    yeh,
    that’s what I thought.
    They did say that it had to be set up properly from the start.
    More for an investor with a varied portfolio looking for balance.

    I have been told to be cautious of hybrid trusts and just stick with a discretionary trust.
    A discretionary trust can be set up easily and offer good flexibility.

    Profile photo of Greg ReidGreg Reid
    Member
    @greg-reid
    Join Date: 2008
    Post Count: 91

    Dangermouse,
    The main purpose of a trust is for asset protection. If you are a business owner or a director of a company and there is any likelihood or risk of being sued personally, a trust should be considered or at least move/have assets in your spouse's name.
    Secondary for many is the ability to distribute income if the trust is generating profits and thirdly there can be some estate planning benefits.

    Be cautious of professionals advising on products they get paid for. I have seen examples of a separate trust being set up for each individual investment property owned as their accountant said it was the best way to go.

    In terms of lending, most lenders are very comfortable with discretionary (or family) trusts, many won't deal with hybrid trust or may restrict the LVR's if they do. The ATO has said they are looking at the use of the hybrid trust so be aware of the implications of that.

    Trusts can and do have their place in the owneship structure for multiple property investors. When the costs of holding more properties in personal names becomes expensive or when tax benefits of holding negatively geared properties has been reduced to a marginal tax rate of 15% or lower or you are purchasring positively geared properties, consider using a trust structure then.
    I hope this helps.
    Greg

    Profile photo of dangermouse99dangermouse99
    Participant
    @dangermouse99
    Join Date: 2004
    Post Count: 88

    How Much would you expect to pay for a trust, roughly?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Nil to $20,000. Probably around $1000 to  $2000 for an average price – set up by a professional.

    Stamp duty in NSW is $500

    Company trustee ASIC fee is about $426 plus cost to set up company

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of dangermouse99dangermouse99
    Participant
    @dangermouse99
    Join Date: 2004
    Post Count: 88

    OK, my accountant is setting one up as we speak and thought it was a little on the high side at $3K…thanks

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    $3000 is on the high side – especially for an accountant. Don't forget a trust is a legal arrangement and accountants cannot give legal advice.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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