Hi Dan

My take on using a company as trustee is that there are 2 advantages:

1) If the trust is sued.
If the trust is sued it is actually the trustee that is sued as they are the legal owner of the assets. Most deeds have clauses saying the trustee is indemnified out of the trust assets. But in some cases the trust assets may not be enough to satisfy the debts owed and in that case the trustee's personal assets may be at risk.

There is a remote possibility of the trust being sued, but it can happen. I think i recall hearing about a kid that died in a house where an illegally constructed brick wall collapsed on top of the child. So it can happen.

2) Flexibility
This can work for loans and control of the trust and works because it is the trustee's name that is on legal documents.

eg. You have a trust with yourself as trustee. You then have problems and end up wih a big default on your credit file. No one will lend to you because you are deemed a risk. You have all that equity but are stuck. you could change trustees to your wife, but this would entail changing the title deeds to your wife. This can be a real hassle, but shouldn't result in stamp duty as the real ownership is the same.
But if you had a company as trustee, all you would need to do is change directorships. No change in title is needed.

eg. 2. Say you want to give control of the trust to your children when they are 18. You can just change directors in the company. easier than changing title deeds.

A disadvantage of a company as trustee is that some lenders don't like lending for trusts especially low docs (eg. St George, ANZ). If you had personal trustees they wouldn't know there was a trust involved.

Hi

It is standard for a lender to seek a personal guarantee. There are ways to minimise the risk by only having one person guarantee the loan, but you need to have your trust set up properly.

You also should not run a business through the same trust as one that holds assets. If the business gets sued, then the assets would be at risk. Never use the trustee company to run a business either.

If you run your business through a company with the shares owned by the same trust, then that is ok as shareholders are not liable for company debts – unless they give guarantees.

I would look at the loans. The interest on the first one seems a bit high – is it PI or IO? I would change all loans to interest only and save the extra in an offset account.

You may have cross collateralised the loans. Try to avoid this if possible as it will create problems in the future.

Just sit tight, try to get the rents up as high as possible and make sure you are claiming everything you can (eg depreciation). Put all money into your offset so you can save interest. When you have enough for the next property, reassess then – it may be wise to pay the money into the loan of the property you want to live in and then reborrow it for the new investment.

Lenders deal with trusts all day long. They usually know about them and the various different types of trusts, but the lenders do have policies (which they seem to ignore sometimes). Many lenders are concerned about third party borrowers – loan in a name other than the title holder. If there is a person as trustee, then it will be much easier.

In Japan buying a new house is like buying a new car. The value rapidly decreases once you have used them.

My family recently sold a house which was owned by my wife's grandmother since 1947. I think the price it was sold for was similar to what it cost in 1947!

We also have 2 terrace houses sitting empty in Osaka (the second biggest city). It would cost too much to tidy them up (new tatami mats, paint, repairs etc) for tenants compared to the rent to be received.

Many people have probably received no advice, or even bodgy advice,  and will end up paying thousands more inn CGT in order to save a few hundred in income tax.

To un-cross your properties you can just contact the bank and ask for a variation of security. They may need to do a new valuation depending on how old the last ones were. Then if you have an LVR of less than 80% it should be easy. If the LVR is more, then it is still possible to un-cross if you pay LMI.

For the construction part, most lenders will lend up to 80% of the construction cost – if fixed price contract – and 80% of land. YOu can get more with LMI too.

Hi Carlin

I wouldn't want to support them either. Maybe if you buy then a carton of beer they will give you the money back as a gift? ie just a paper entry. But you do have to be careful as many potential problems. I personally don't do it, but it is always good to have the option there.

Hi Daniel

Thanks for the update. It is good to see a variety of opinions. You will find that not many accountants have a good understanding of trusts and not many lawyers either. I was surprised to see my lawyer friend owning a number of properties in his own name with his wife not working. He ended up doing risky business ventures too. crazy

Anyway, here are my responses:
1) It is pretty remote in getting sued, but just look at the court lists. It happens to hundreds of people daily.
What if you take some bad advice and open up a business in partnership with your best friend. The business gets some debts, and your best friend disappears and you are left getting sued.

What if you have an accident in your car and are not covered by insurance as you were not wearing your glasses etc

Many things can happen and these are not predictable.

2) Trusts don't get hit with a higher percentage, it is just that they do not receive a tax free threshold that individuals do – about $360,000 in NSW. This means you will pay a bit more land tax initially, but not after you hit the limit.

Other states are also different too. I think you may get the threshold in some.

Land tax laws are constantly changing too.

3)  With a will you can pass on property – but what if you put your son down and while you are dying of cancer he goes bankrupt because he can't work while looking after you? Your property would go to his bankruptcy trustee who can then sell it and pay off his creditors.

Or what if your daughter got a messy divorce and her cheating husband go his hands on it? His new mistress could be living in it instead of your daughter.
etc

Trust property does not pass through a will. It remains in the trust.

There may also be savings of CGT if property passed on is sold. (they may need some funds to pay for your funeral).

4. More flexibility in a DT

5. I am not sure you would get any concessions on residential, but you could on commercial property. Why not keep the option available

6. If each child is given $2666 pa (this fin year) that means you could be saving about $1300 in tax per child if you were on the top rate. A non working cousin could probably get about $14,000 pa and pay no tax (using the low income tax rebate).  another $7k in potential savings.

Not sure what you mean about distributing outside the family. A trustee can distribute to anyone named or included in the trust. This usually includes most people with even remote connection to you. eg. future step children yet to be born. If they are not included, then you cannot distribute to them directly. So there are no tax issues.

7. The trustee is irrelevant. Whether it is a person or a company or a combination doesn't matter. If you distribute to a company, then it is the company's money. if the company holds the money it may be taxed at 30%. But the company may pay out dividends too or have other expenses. It is probably not a good idea to distribute to a company if it is trustee as then it is starting to take on none trust roles and this may complicate things. best to set up a new one.

8. True, you may be sacrificing some deductions in the early years – but the other advantages hopefully will outweigh this.

I should also point out that jointly owning property can have adverse consequences on borrowing capacity for future properties. Since  each person is responsible for the whole loan, lenders will assume each person is paying the whole mortgage. But each person is only entitled for 1/4 of the rental income.