Set up a Trust?

Perhaps the best information about Australian trusts for property investors is in Dale Gatherum-Goss’s book “Trust Magic”. You can order it via his Website:

http://www.gatherumgoss.com/shopping.htm

Nick Renton’s book on Family Trusts is good too, but rather dry reading.

There is a little basic info I’ve seen on the Net, but the books are more detailed.

Basically, from my understanding, there are three types of trusts: a discretionary trust, a unit trust, and a hybrid trust. The latter is a combination of the first two.

Discretionary trusts are generally favoured for property investors because of the asset protection and tax advantages they provide. Hybrid trusts are good if you intend to negatively gear the portfolio, especially if the borrower is a high income earner. When no units are on issue from a hybrid trust, it is essentially the same as a discretionary trust.

Whether you want a trust at all would depend somewhat on your circumstances. You should seek advice from a property-savvy accountant. I gather a lot of other accountants are not always in favour of using trusts. My accountant tried to put me off the idea when I first mentioned it to him.

You don’t necessarily need to find an accountant near you. A number of people on these forums use people like Dale even though they (literally in a few cases) live half a world away.

Dale’s in Melbourne and frequents the Somersoft property forums. Another in Sydney is Nick Moustacas at http://www.strategicwealth.com.au. And in Queensland is Julia Hartman at http://www.bantacs.com.au, a member of this forum.

GP

The real protection comes from the trust. It’s just easier to replace (fire) a corporate truste rather than an indvidual.
(manily because a company has limited liability where as an indvidual has unlimited liability). But as I said before the real protection comes from the trust.

Rgds.
Lucifer_au

As GreatPig has talked about all the trust. best to get hybrid trust. It will cost you about $1300 to set up and if you company as trustee add $1000 more to it.

Cheers
PropertyGuRu [sultan]
Mortgage Consultant
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I have just had the cost of $2700 for a Hybrid Discretionary Trust with corporate trustee by Gatherum-Goss (previously mentioned by GreatPig).

However, you could set up your own pty ltd company without accountants’ charge for minimal amounts, other then the statutory charges (www.incorporator.com.au)

James

That’s similar to what I paid for the same thing, although not from G-G.

GP

Trusts operate basically like normal companies, except profits cannot be retained in the trust and must be dispersed(paid) to the beneficiaries annually. So in answer to your question you would open a bank account for the trust and rent would be paid into it, loans would generally be in the trusts name(although most likely guaranteed by your personal assets, unless you have a sizable deposit for your IP). Any profits can then be distributed to various family members etc(beneficiaries) to minimise tax, eg, keep money in lower tax brackets.

Hope this helps.

HI All

Just wanted to confirm what TerryW said – I used http://www.cleardocs.com to create both a Trust and a Company, and it was really simple and very cost effective.

All their Trusts are only $137.50, and the company was $937.50. You can even lodge the conmpany electronically, online – so you get everything straight away (which I don’t think incorporator.com can do).

You needed to have a little bit of knowledge, but if you dig around on this site for while, you should have more than enough info.

Just thought I’d feed that back.

magicdan [cigar]

lbgeln,
I’m not sure why you want to or how often you can make payments. From what I know trusts basically operate like normal companies, except the major difference being, that a normal company can retain profits over financial years, whereas a trust MUST pay all profits to the unit holders of the trust for the FY(ie family members) who then pay normal income tax on those profits(or get tax rebates depending on which tax bracket they are in). With my limited knowledge on the subject, it is beneficial for spreading income to keep it in lower tax brackets. From this perspective you can do similiar things with a normal company through planning who holds the shares, while being able to retain profits in the company over multiple financial years.

All this being said I am definately no expert in trust structures, but have picked up a little when I investigated it a few years back for my own purposes, I chose a normal pty ltd company but I wasn’t using it for property investment at the time. I’m thinking about it now though as I have accumulated tax credits I can now have some tax free income against.