I need some help!!
We are just getting started in property investment and our advisor is telling us that we need to set up a unit trust for each and every property that we purchase.
I’m confused and haven’t been able to understand the reasoning behind this. i have a meeting with him soon and would like to be a bit better informed before this meeting.
Does anyone else use trust funds for property investments?
Also, he wants to charge me $880 to set them up each time. This seems a bit rich too me for a property costing only $80,000.
Any thoughts or comments would be much appreciated.
SJ,
I need a little more information before I can provide a meaningful reply…
1. What are the professional qualifications and background of your adviser?
2. What State do you live in?
3. When you went to see your adviser, were you seeking advice about asset protection or tax minimisation?
4. Precisely what do you get for your $800?
5. Any idea why a unit trust was suggested?
Based on your answers I may be able to help your further.
Bye,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Steve
1. The advisor has an accounting qualification, but not a member of any professional body.
2. We live in Qld.
3. We initially went to this guy looking for a financial planner/advisor. We were looking at investing in property but were also looking for help with our total financial plan, ie. setting up salary sacrifice, tax advice, and structuring and property purchases effectively. We didn’t ask about asset protection, this was his advise as the best way to go.
4. As far as I know, he will set up a unit trust for each property and the manage these trusts.
5. From our first meetings a unit trust was suggested mainly for asset protection.
I have the uneasy feeling that the plan of this advisor is to set up these trusts and then have us hooked up with his business, while not actually providing any value to me. I’m sure he will be wanting to do the tax returns on any income for each trust and so develop his own pasive income stream!
I’m not experienced in this and appreciate your ideas and opinions.
Thanks for your help.
SJ,
I think that it would be a good idea to get some advice from a Qld solicitor re: latest changes to property investing rules in your State. There are new regulations in respect to the number of properties you are allowed to transact in a period without an appropriate licence.
In fact, I’ll try to get a solicitor to make a post about this on the forum when I get back to Melbourne (I’m currently in Mackay until 15 June… what’s with this bad weather? [
])In resepct to a few of the comments that you have sought help on, my feedback is as follows:
Structures
There is no right structure that fits best for everyone. However, unless there are unusual circumstances, I’d be very surprised if a unit trust was the best way to go.
This is because a lot of the flexibility you can enjoy with a discretionary trust (such as a family trust) is lost with the fixed entitlement depending on issued units.
As such, I strongly suggest that you receive another opinion on this matter and I’d make sure my adviser was either a tax lawyer, CPA or Chartered Accountant.
Having said this, structuring is important, but it is just one of many issues that you will need to overcome as an investor. In fact, depending on your circumstance, you may find that you could do one or two deals in your own name before needing an expensive structure.
The question is… what do you have to protect and how much are you prepared to pay to protect it?
Advice
For what it’s worth, my tips on structuring are more based to asset protection rather than tax minimisation. I’m happy to pay tax so long as I am earning cash profits. More so, I’m not interested in making a loss to try and wipe out my tax bill.
Re: your adviser, from what you have written here I have to say I have one eyebrow raised. Not withstanding that I was not privy to your interview, the idea of one entity per property is quite perplexing!
Perhaps you could encourage your adviser to post his/her thoughts about this on this forum?
Finding an Adviser
It might be wise to shop around for another opinion.
I suggest you go to http://www.wealthtipsonline.com.au and download the free report that will help you find a good adviser.
You can also post your general questions here and I will help where possible and within limits.
I would also like to point out that the issue of structuring, include the exact structure that I use to protect assets and also legally keep my tax bill as low as possible is outlined in detail in my Wrap Library.
For more information about the Library, visit:
https://www.propertyinvesting.com/files/content.asp?cid=wrapintro
Regards,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
My solicitor advises one property per trust.
He says that if you get sued, even possibly by the tenant,
your losses are limited in that way.
We live in such a litigation minded society, that I think its a good idea.
He says it costs about $500.
I asked him about the possible inflexibilty with profits and losses. He says, that profits in one trust can offset losses in another trust.
The accounting is no more difficiult than owning multiple properties.
I use the quicken software, which I find excellent and keep each expenses and income for every property separate.
ReginaEvening all,
I was talking to an accountant the other day and he was saying that the first trust needs to be purchased but after that he would show me how to establish further trusts myself. Does this sound right ?
Appreciate comment/thoughts.
AD[:0)]Regina
One trust per property is absolute overkill.
In Victoria (which doesn’t have the same limitation as Qld) David and I place between 10 – 15 properties per entity structure.
In Queensland, the problem as I understand it is not how many properties you buy in any year, but the number of properties that you sell. Accordingly, you need a structyre that considers the likely number of properties you will dispose in any 12 month period and when you come close to the limit I recommend you begin buying in another entity.
Andrew
What you say is true if you take your trust deed and type it up again, just changing the names and other variables needed to establish the new entity.
Most of the trust deed (perhaps 98%) is just standard wording that only changes every few years.
However, while you save money in the trust set up (you’ll still need to pay stamp duty), you run the risk that the wording has not changed to reflect changes in legislation – something to be mindful of given the landscape of trust law changes given the Federal Government’s inclination to potentially attack trusts.
If you have a good relationship with a lawyer / accountant, you may like to proceed with your strategy, but I’d recommend contacting them first to discuss the impact of any changes in law on your trust.
Bye,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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