All Topics / Legal & Accounting / Do you use a trust ?

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  • Profile photo of setmefreesetmefree
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    @setmefree
    Join Date: 2004
    Post Count: 46

    I roughly understand the pros & cons of using a trust to acquire IPs, and am deciding whether should or should not set up a hybird trust. I talked to my solicitor and he said not too many of his well seasoned property investors using a
    trust. Just wondering if you use a trust and do you wish you haven’t set one up ?

    Profile photo of The DIY Dog WashThe DIY Dog Wash
    Member
    @the-diy-dog-wash
    Join Date: 2003
    Post Count: 696

    We have a hybrid trust that has been operating for just over a year now so we are only in theearly stages, but we aren’t disatisfied at all and still beleive that our reasons for setting it up are still valid, ie: asset protection and tax effectiveness.

    I would suggest that you determine what is a seasoned investor in your solicitors terms because if he means they have 2,3 or 10 proeprties only then maybe you need to find someone that is in tune with your investing direction.

    Cheers
    LeighK[biggrin]

    Profile photo of yesfella28061yesfella28061
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    @yesfella28061
    Join Date: 2003
    Post Count: 11

    Too much trouble getting loans with a Trust.
    I opted for my own name. Still OK tax wise.
    After, I buy a property, my solicitor and accountant form an agreement with myself and my trust. Works great.
    Suggest you pay for some good advice.

    Profile photo of yackyack
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    @yack
    Join Date: 2003
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    Can you expand a bit. I have all properties in my name for negative gearing purposes. The downside is asset protection – however I do have lnadlord insurance and public liability on each investment property.

    Profile photo of GreatPigGreatPig
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    @greatpig
    Join Date: 2004
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    Originally posted by yack:

    I have all properties in my name for negative gearing purposes.

    You can also do that with a hybrid discretionary trust.

    GP

    Profile photo of yackyack
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    @yack
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    Originally posted by GreatPig:

    Originally posted by yack:

    I have all properties in my name for negative gearing purposes.

    You can also do that with a hybrid discretionary trust.

    GP

    I have the following concerns-

    1. Can I still claim all the interest expenses in my tax return?
    2. How does this effect my capacity to borrow with the Bank? Do I still sign personal quarantees – so it really has no effect.

    If my concerns are resolved I will investigate further.

    Profile photo of AceyduceyAceyducey
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    @aceyducey
    Join Date: 2003
    Post Count: 651

    We have most through trust structures & a few in personal name.

    Yack, buy Dale’s book. It will answer your questions.

    Cheers,

    Aceyducey


    In theory, there is no difference between theory and practice. But, in practice, there is.

    – Jan L.A. van de Snepscheut

    Profile photo of GreatPigGreatPig
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    @greatpig
    Join Date: 2004
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    Yack,

    Until you get around to buying Dale’s book…

    1. Can I still claim all the interest expenses in my tax return?

    The idea is you borrow in your own name and buy income units from your hybrid trust. Since you’re borrowing for income-producing purposes (you get the net income from the rent), the interest is deductible, even if its more than the rental income.

    2. How does this effect my capacity to borrow with the Bank?

    That I don’t really know. I recall from Dale’s book that some lenders may not be too comfortable with the concept, due to lack of familiarity, but you’d really need to ask a good mortgage broker.

    Do I still sign personal quarantees – so it really has no effect.

    I gather the trustee allows the property to be used as security, so I suppose if the lender would accept it as security when bought in your own name, then they would probably do likewise when bought in a trust.

    However, a mortgage broker would be much better placed to answer this. I’m only going by what I’ve read.

    GP

    Profile photo of FFCommFFComm
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    @ffcomm
    Join Date: 2004
    Post Count: 627

    I know you can still get 90% loans for a trust (I’m not too sure about 95% though).

    The problem with having assets in your own name is that if you are sued (say someone damages themeselves while diving into a pool) you can lose the property, even if you have landlord and public liability insurance.

    From perosnal experience if you are injured it can be more benefical not to have assets in your own name when you are suing the other party as well (ironic!).

    Also 15% CGT is nice too.

    Also you may have to pay a small fee for the banks soliciotrs to look over the trust documents, but it is only a couple of hundred dollars.

    Rgds.
    Lucifer_au

    Profile photo of melbearmelbear
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    @melbear
    Join Date: 2003
    Post Count: 2,429

    Lucifer, where do you get 15% CGT from?

    Cheers
    Mel

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

    I have been using a trust for about 3 years now and wouldn’t have it any other way.

    There is no problem with getting loans when using a trust – including 95% loans. They do not affect your borrowing capacity as you will still be giving a personal guarrantee for the loan.

    I think Lucifier is mixed up by 15% CGT. Is this for super funds (or is it 10%)? Trusts do not pay tax, but pass on the income to the beneficiaries, so the CGT may be as little as Nothing, or even as high as 24% (if on top taxrate after the 50% discount).

    Terryw
    Discover Home Loans
    North Sydney
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of fulloutfullout
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    @fullout
    Join Date: 2003
    Post Count: 233

    Hi,

    If you own a property under your trust, and you take out the loan in your own name to negative gear,,,, the next time u want to do a homeloan, wouldn't your loan capability go down a lot? You have loans, but no asset/income from asset/.

    ?????????????????????

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Superanuation funds CGT at 15% unless the asset has been held for 366 days and then the rate is reduced by 33% to 10%.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of ptnptn
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    @ptn
    Join Date: 2006
    Post Count: 74

    Hi TerryW

    For a DT or HDT, can a non permanent resident be a trustee?

    Also, when buying a new IP, you need to put in 5% or 10% deposit + cost, is this something that you can lend to the trusts now and get it back sometime in the future?

    Thanks
    PTN

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Not sure where you get the Statement "Finance is too difficult using a Trust"

    You should be able to easily get 95% and even 100% funding using a DT  /HDT or even a UT structure with the right lender.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

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