Hi,
I have just come from seeing an accountant this morning, with the advice you probably would be better of investing as an individual rather than setting up a trust.
I have been doing a lot of research into trusts. I even bought Dale Gatherum-Goss’s book Trust Magic. As far as I can see generally trusts would not really benefit the average person. There is a lot of hype about setting up trusts from differenet people, and while what they say is valid, if you are just an average person starting out in IP then I dont think it becomes so relevant. The 3 main items that people tout about with trusts are :
1. Protect assets. This is great if you are a doctor or something, whereby the chances of you being sued and losing everything. Or if you have a big portfolio of multi-million dollar assets. For the general joe bloggs, then asset protection should not really be a concern.
2. Distribution of income. This is great if you have a big family, and you can distribute the income to low tax earners. However if like me, I only have my partner, and mum then the advantages of this are soon lost.
3. Pay otherwise ‘private’ expenses from a trust. This is debate-able because as an individual you can still claim expenses, so I am not sure what you gain. e.g. my internet access is already tax deductable as an individual because I am using in order to help generate income ie. research.
I don’t want to say trusts are bad, because they can be very good depending on your own situation. I just felt that everyone, especially on this forum were talking about trusts, and how good they were.
Well those are my thoughts for today….
Cheers
Rob
Fresh from a seminar, I asked my accountant (who also lucklily is a rental property investor himself) about it – he says once you get to the point where the trust/company stucture is going to save you more than the cost of setting up and maintaining them, then it’s worth it.
i.e. when it’s cashflow positive!!Of course for the asset protection benefit, only you can say whether it’s worth doing for that reason and your own piece of mind, however for me insurance cuts it for me as ‘asset protection’ at this stage.
cheers-
MiniHi Mini,
What do you mean by your last line insurance cut?
So do you use trust or not at the moment?Amit
rx2_73, some accountants will hard sell the whole Trust scenario based on the “if” factor. IF you have an “uninvited guest” on your rental property and they fall off the balcony and break their necks – sue you for damages – you won’t be covered under your insurance….apparently “uninvited guests” aren’t covered under insurance. IF your property is under insured and you have a fire and the fire damages adjoining properties you can be up for the under insured portion to the other property owners. The example I’ve heard given is as follows:
Jonny Average ownes a business and suffers a fire which virtually destroys his business and does damage to the adjoining businesses. The insurance assessor talks to Jonny Average and his bevy of employees and comes to the inclusion that Jonny is only insured to 4/5ths of the value of the business assets. Poor old Jonny has to foot the other 1/5th for his own damage and then 1/5th of the adjoining businesses damage…potential leaving Jonny with a big fat debt.
The “uninvited guest” and the “under insured” scenarios are the ones I hear used most often. Litigation statistics for the USA are often bandied around with the addition that Australian Courts are heading the in the same direction as the USA. The argument being that you should not own anything in your own name but rather in Trust structures – not for any possible taxation benefits but to protect your assets.
It comes down to how risk adverse you are and how likely you think it is that any of the aforementioned scenarios could/would happen to you.
Hi kelly1100,
what if you’re just do wraps, would that “uninvited guest” scenario your proplem?
Christine
Hi Chris01. If you were just doing wraps with the property, I’d imagine that the purchaser would have that problem. I know of accountants who recommend that you purchase your “wrap” properties in a separate trust, so perhaps it is still your problem.
If anyone, Steve perhaps, has some better insight on this topic, I’d be interested to hear.
Hi all,
I’m being sued at this moment! And I still can’t see why everyone would need to have a trust.
There are insurances for every occasion. Besides,
this is the third time I’ve been sued and on two
of the occasions I’ve won and MADE money out of them.On this court appearance(supreme court)I’m
waiting for the date to be set.I’m counter suing
at double what they’re going for.
Money for jam!!!
Who’s suing me??? My bloody mother-in-law!!!!!!!
Bruce G.g’day bruce
yr mother – inlaw eh!
why does this not surprise me
i think you’re alright – good luck and keep us updated
cheers
ps – bruce
there an old saying
you can insure against anything…. except your mother-inlaw……
cheers
G’day Aussierogue(wish I had thought of that name)
Down with all mother-in-laws!!! The old cow gave me sixteen thousand dollars,and I allowed her to live in my house rent free.I thought she would snuff-it in a few years.After eighteen years I threw her out,good grief she had all those years
at a cost of $17.00 a week.Plus I paid all her overheads.Now she wants her money back plus interest.$62,000.
So I’m suing her for rent,food,part of all household bills.$115,000.
Even trying to make her pay for some of the extentions,granny flat.$165,000 with the flat thrown in.
Gee has this boy got a big heart,looking after dear old mother-in-law.The old cow is 90 years old.What happened to three score and ten?????
Bruce G.BRUCE – SOUNDS LIKE A TOUGH SITUATION. GOOD LUCK.
PS – IM ONE OF THE LUCKY ONES – I LIKE MY INLAWS
CHEERS
There is obviously a lot of merit in the old saying
“Don’t do business with family”.
Good luck.
Bruce, good luck, we need something like TV’s american show Judge Judy, she’s terrific and can really sort ’em out.
I hope we are not going to see a current affair: “landlord evicts his own mother in law”.
Basically my parents are going to be dependent on me at some stage to buy them a new home, or most of it, when we sell our current abode, which we jointly share.
Unfortunately they have only ever financially had failures, which is why I am trying my hardest to do it differently, and gradually succeeding.
Anyway, I feel its my duty to support them, as they have supported us.Well Bruce, based on the facts as you presented them it really looks to me as if you are going to lose this one.
You have already won two court cases so I would guess that two out of three isn’t bad.
The amount you received is irrelevant as you agreed to the arrangement on that basis and you are now the one who chose to break it.
The emotional upheaval and trauma you have caused this dear old lady, who knows at what rate the judge will assess this ?
Your mother in law may well finish up owning your house after suitable damages have been awarded to her. [
]$ 16 K eighteen years ago, in todays’ terms that would be more like $ 170 K.
The interest alone at the rate of say 7% would be some $ 200 per week +, besides that, you have laid your hands on the capital as well.
[
]Pisces133
Yeah good on ya Pete!
Kick him while he’s down, i’m sure thats just what the poor guy needed to hear.Work smarter, not harder!.
I’ve noticed in the Forum of late, that emotion and invective seems to be replacing reasoned, rational debate and information.
My view is that you are bound by your agreements, whether they work in your favour or not. Its an integrity issue.
Cheers[
]I think trusts have become the great “buzz” thing in real estate investment of recent times in this forum and others.
I think they really only greatly assist a handfull of investors. I suspect some people are setting up complicated structures because it makes them feel like sophisticated big time investors.
Setting up this way for assett protection purposes is really only of benefit if your principal occupation warrants it (i.e doctor, partner in law firm, self employed) but not if you are a standard paye employee.
No doubt they are suitable for some people but I suspect not the majority of investors.
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