All Topics / Help Needed! / To Trust or not to Trust

Viewing 8 posts - 1 through 8 (of 8 total)
  • Profile photo of stargazerstargazer
    Participant
    @stargazer
    Join Date: 2002
    Post Count: 344

    Hi all

    I am just a touch confused on how to progress forward in my IP investing.

    Talk to some investors and they have many properties in their name or names.

    Others say if you buy a portfolio of property a trust should be used as a structure for asset protection etc.

    Spoke briefly with my accountant he said no you dont need a trust because you cannot offset your losses if NG.

    Then of course i am thinking hold on if i need a trust what is the
    -cost to set up
    -the type of trust to use
    -how much do i have to know to understand how to administer it.
    -what are the ongoing costs
    -Is it really absolutely necessary

    Litigation is becoming more and more obvious in this country heading towards the american way.

    So i guess i am asking how do you decide if you need a trust.

    If a trust is not necessary for asset protection how else can one protect assets.

    Just how much protection does one need when owning IPs and where do you draw the line.

    My understanding of trusts is for
    Asset protection
    Better to be in control of distribution of funds to beneficeries.

    I don’t fully understand the mechanics of it yet.

    Any comments would be appreciated.

    regards
    SG

    Profile photo of Supa FreakSupa Freak
    Member
    @supa-freak
    Join Date: 2004
    Post Count: 101

    SG, do a search on this forum on trusts. You’ll find a heap of stuff.

    I think if you have a mixed portfolio ie NG and PG IPs you can set up a Hybrid trust….or something like that…

    Keep looking up
    SF

    Profile photo of braniebranie
    Participant
    @branie
    Join Date: 2004
    Post Count: 19

    Hi Stargazer,
    first of all, just came from the Masterclass in Brisbane, so thank you for giving me a question I might be able to help with (homework is to answer three questions in the forum).
    Tusts were discussed in general. I believe in regards to negative gearing you can use a hybrid trust where you take out a loan (as in you the entity, not you the trustee), gifting the proceeds to the trust to invest, and you get the tax deduction for the negative gearing part. Just as you would get a deduction for negatively gearing into shares (because your negatively gearing into your trust, whcih then invests it into property). A hybrid acts like a unit trust in this regard but like a discretionary trust when it come to distributing income and capital gains. That being said I’m NOT an accountant so seek professional advice. One of the tips from tonight was treat all advice as opinions until you verify it yourself :-)

    In regards to asset protection a trust will protect your investments if you (as in you the person) are sued. If however one of your tenants falls and hurts themselves, they will sue the trust (as it’s the trust that owns the investment property). So all your properties could be at risk there. But this is why you have landlords/public liability insurance. Again, I’m not an accountant or an insurance adviser. If pain persists please seek professional advice.

    I’m reading a good book on the subject called “Family Trusts” by N. E. Renton. Also Steve has the newly revised Wealth Guardian which covers how they use Trusts.

    Have Fun.
    Brett.

    Profile photo of braniebranie
    Participant
    @branie
    Join Date: 2004
    Post Count: 19

    I forgot to add (does this count as a second post Steve?) there are other reasons to use trust structures as it assists in your ability to keep borrowing to invest. If, however, you use a hybrid trust to do a negative gearing deal, this could adversy affect this benefit, as the loan is against your name so is a liability you will carry with you…

    I’d first get some more knowledge so you can ask your accountant the right questions. Or at least put it to them so they can understand what your trying to achieve (I’m hanging out for my copy of Wealth Guardian because I’m also interested in the topic). Definately some issues that could reduce your abitity to borrow in the longer term with NG and trusts. Why not do the MBF thing and Be +’ve :-)

    Profile photo of Clay AClay A
    Participant
    @clay-a
    Join Date: 2005
    Post Count: 33

    Ditto Brett

    I also have just come from the Master Class in Brisbane and the information I gleened on trusts seem to hold a number of answers for presenting problems on my investing horizon.

    I can not wait to get my copy of Wealth Guardian.

    Happy Investing

    Clay

    Profile photo of stargazerstargazer
    Participant
    @stargazer
    Join Date: 2002
    Post Count: 344

    Hi all
    Thanks for your responses much appreciated. i am finding to hard to get my head around this trust thing. If someone could explain in laymans terms it would certainly help.

    This is my understanding so far:
    Trusts are use for:-
    Asset protection
    Distribution of funds to minimise tax.
    (I have read on some posts that the proeprties may be at risk in a trust as well if the trust is sued)…This then get me a bit confused.

    A trust is made up of
    Appointer
    trustee
    benfeciaries

    there are three types of trust
    Family trust
    Descretionery unit Trust
    Hybrid Discretionery Trust

    Once a trust is established any current properties incurr normal sales costs if transferred into trust.

    If PPOR tansferred into trust the costs involved but can rent back of trust.

    Further purchasers acan be bought by trust. But you are the person that is the appointer and the trustee?

    How are the loans handled do they have to be refinanced and trust borrow the money or a new loan created for trust properties.

    If properties NG then cannot offset losses till sale. Interest etc not tax deductible.
    There is a way of doing according to investors? i get a bit lost with this one.

    I am looking to buy “trust magic” hope this will answer my questions but if anyone wants to have a go?

    I have not purchased any property because of this i want to try and get the structure right.

    Spoke to my accountant he said i don’t need a trust. AHHHHHHHHHHHHHHHHH.

    Anyone?

    Cheers
    SG

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Trusts are worth looking at in my opinion. But don’t overkill. I have seen people spend thousands on elaborate structures to save tax, when they don’t make any money!.

    A trust can cost as little as $137 to set up and nothing to run. If you are just buying properties, the tax return is easy, and you could do it yourself if necessary.

    Trusts can be used for negative gearing. A hyrbid trust is used with units owned by the high income earner who then borrows to buy these units. The money isn’t gifted to the trust (otherwise you couldn’t claim the interest). These can cause more problems when borrowing if you have a company as trustee. Due to the fact the house will be in the company name, but the loan must be in the individual’s name.

    There are many different types of trust such as service trusts, testamentary trusts, superannuation trusts etc. But the two main ones are unit and Discretionary. Unit trusts are not safe when it comes to asset protection as the units are owned and can therefore be at risk. Hybrid trusts are therefore not as safe as discretionay.

    SG, get another opinion from a different accountant. Most do not understand trusts.

    Terryw
    Discover Home Loans
    Mortgage Broker
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of PeterMPeterM
    Member
    @peterm
    Join Date: 2003
    Post Count: 9

    Hi SG

    Though 3 weeks ago, I did the SYdney Masterclass, so hope this will (still) count as a post?

    I can recommend a resource from Dale Gatherum Goss called “Trust Magic”. DOn’t have hi website to hand but can be purchased through BUsiness Mall or check out the back of API Magazine.

    Cost is $100 – treat is as advice – and gave me a good feel for how they work / can work.

    STeve’s Wealth Guardian should be very useful too (have ordered and awaiting arrival!)

    From there, as TerryW suggests – get another opinoin from another Accountant (Im faced with the same situation), but I find being armed with some info first helps with questions to ask.

    Try explaining what you want to do (cf+, NG or both etc.) then your understanding of options and have them assist from there.

    Rgds
    Peter

Viewing 8 posts - 1 through 8 (of 8 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.