Hi everyone!!
As the title indicates, unfortunately i have no idea how trust and companies work. I have read some of the replies to other q’s on the forum.
I really would just like to know if anyone out there can recommend books to read in this area. I would rather have a basic understanding of what it is and how it works for property investing.
Im trying to decide whether i should create a company, trust or both for future investments?
thanks heaps!!
RichThe standard structure is a trust with a company controlling the trust (know as the trustee or corporate trustee).
The reason why we have that structure is that it reduces our CGT to 15% (rather than 30% for companies, 15% for trusts & indivduals) and we have a corporation as trustee because we have higher protection from lawsuits.
It would prob. be best to see an accountant.
FFComm
Hi Richard
You question covers a broad area and really depends on what you want to achieve?
Are you after tax minimisation then a Company is the way to go as you only pay 30 cents in the $ tax. Plus if you are running a business and making a profit from property investing Eg doing renos, you can claim nearly everything to do with property.
If you want asset protection then a discretionary trust is good with a company that does not trade as the trustee on top and the trust underneath. It is good for minimising capital gains also.
I know some people who have a trust for every house they own. So if they are sued, say by a tenant then only that house is venerable and all the other properties are safe.
As our legal system is linked to the British system a trust is common law. It came into existence when an over zealous British king tried to steal the church lands and possessions. The church set up a trust under Joe Blow the farmer who owned nothing as trustee. Since the king could not get anything from the farmer as he owned nothing he could not get access to the trust to steal the churches lands. This is an abbreviated version of the story but close.A company is Admiralty law and is in essence a person who never dies. It can have one or more directors who do not own the company as such but are employed by it. It has special tax laws that are much more flexible than what a normal person has. So if you are going to do property as a business then you should start a company. You can get a shelve company set up for around $1000 and a trust for around $300 to $500.
You can contact Castle Corporate Services PTY LTD on 03 9898 6666 and they will help you out.
KerwynHi Rich
I found Steve’s Wealth Guardian absolutely invaluable in getting my head around various business structures. Have a look at:
https://www.propertyinvesting.com/resources/11.htmlCheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Everyone,
Was wondering the following point about trusts. I understand the entire point of running them is for asset protection. If the asset is not in your name, there is a barrier towards anyone getting their grubby little mits on it
However, my question is, how does the law view the initial seed money contributed to the trust. While the trust is a legal entity onto itself, it cannot exist in isolation. For the investment to start within it, one must first contribute ‘seed money’ to allow investment. Usually in the case of the property investor, this would be the deposit lodged in the property.
Now, if say I had a trust and had to contribute $ 20K as deposit for a property into the trust, when it comes down to litigation, how does the law view my initial contribution to said trust? Is it still my asset, even though I have contributed it to the trust? Or is it considered a contribution and no longer mine to be attacked?
May not be the best place to ask, but was wondering if anyone had any thoughts on the matter
Thanks for any help provided.
lupus
Originally posted by lupus1704:Is it still my asset, even though I have contributed it to the trust?
I think the whole point of having of this, is that you do not own it. So if you file for a bankruptcy, the investment property is not affected.
The whole Trust/Company issue can be very complicated and depends very much on what you’re trying to achieve.
Trusts will certainly give you some asset protection but there a number of different types of trusts and the ones you use depends on your circumstances, what you’re trying to achieve and, even which state you live there (there are different rules for each state.
I highly recommend you get a copy of the book by Ed Chan – details are on our site – and talk to Ed or one of his team who specialise in this area. It will explain to you the different kinds of trusts and how they can be used.
At the end of the day, you should always get professional advice BEFORE you buy any property as it could save you 000’s. And, yes, every situation is different so you will need individual advice.
Ed’s firm can be contacted on 02 9684 2011.
Hope this helps.
Megan
http://www.propertyhub.net
Your Investing and Developing Information Hub.Originally posted by lupus1704:Now, if say I had a trust and had to contribute $ 20K as deposit for a property into the trust, when it comes down to litigation, how does the law view my initial contribution to said trust? Is it still my asset, even though I have contributed it to the trust? Or is it considered a contribution and no longer mine to be attacked?
lupus
Hi Lupus
A “Deed of love gift” will allow you to gift the funds to the trust. Easy and cheap to do. If the funds are no longer yours they can not be clawed back, but if they are loaned to the trust then it would be seen as an asset for you.
CATA
Asset Protection Specialist
[email protected]Isn’t the intent to buy units in the trust with the money, then the trust purchases the property??
You loan from the bank, buy units in the trust, trust buys property, trust pays you back..?
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorThis is one way to do it in a Hybrid Trust, Redwing.
But remember that if you own units in a Hybrid trust that is an asset that you could be clawed back.As you know, I prefer a discretionary trust for myself ( also, a hybrid trust that has not issued any units is treated like a discretionary trust until it does issue units)
CATA
Asset Protection Specialist
[email protected]Originally posted by Cata:This is one way to do it in a Hybrid Trust, Redwing.
But remember that if you own units in a Hybrid trust that is an asset that you could be clawed back.
Hi Cata, can you clarify this?
What do you mean by clawed back/If it’s what i think; then how about a HDT with a company as Trustee, yourself as appointer?
As you know, I prefer a discretionary trust for myself ( also, a hybrid trust that has not issued any units is treated like a discretionary trust until it does issue units)
How does the Trust actually physically issue the units ?REDWING
CATA
Asset Protection Specialist
[email protected]“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorI heard someone saying something about a hyber trust – it’s a cross between a hybrid and discretionary trust. Is that right?
Originally posted by Cata:
A “Deed of love gift” will allow you to gift the funds to the trust. Easy and cheap to do. If the funds are no longer yours they can not be clawed back, but if they are loaned to the trust then it would be seen as an asset for you.CATA
Asset Protection Specialist
[email protected]Cata,
Thanks for the response. I was under the assumption that any gifts, specially to trusts could still be clawed back by litigation if the gifting occurred within 5 years of the litigation taking place, specially if the gift is deemed a manner by which the person being sued is trying to hide/protect assets. Is this the case?Thanks
Lupus
Hi Lupus
If you give someone(or company or trust) something, is it yours anymore?
And if there is a legal document to back you, who can argue? Unless it happened after the litigation process has begun.There is a “6/24 month bankruptcy law” which means that the trust can be broken into in the first 6 mths and possibly broken into in the next 24mths, depending on what you are being sued for. Different circumstances will cause different outcomes eg.something illegal is not good.
If you are trying to hide assets from a current litigation, probably. If you are gifting the funds incase of future litigation but there is no “Smoke” then it should be ok.
Redwing
If you own units in a HDT,that could be seen as an asset in your name, therefor is an asset possibly worth sueing for.
I would not use anyone else but myself or partner as the appointer as I want full control of my trust. I have heard or people using someone else as appointer and loosing all that is in the trust.
Units are issued with a minutes entry in the trust deed. Wording is important though.
Hope this helps
CATA
Asset Protection Specialist
[email protected]Thanks Cata
As always your posts are informative.
I think when looking at your Investments Structure, thought should be given to the future and the benefits therein. After all, isn’t that what Investing is all about; looking towards future gains (whether they be increased cash flow, capital gains etc)? I’m learning as I get older that you also need to look at Asset Protection, Wealth Creation, Gearing strategies, Retirement Planning, Tax Planning and Family Succession Issues as well.
Structures can include Individuals, Partnerships, Companies, Trusts (various) etc
Individuals, partnerships and Companies are all legal entities a Trust I believe is not; all liability falls on the trustee, however, I’ve seen contrary information that says a Trust ‘is’ a legal entity?
Unlike Companies, Trusts cannot retain income but must distribute it each year, Trusts also like companies cannot pass on losses (I’ve now learnt).
A Trust consists of the Trust, Trustee, Director/Appointer, and Beneficiaries whereas a company consists of the Company, Directors, Shares and Shareholders.
I believe from what I’ve read the best vehicle for acquiring assets in is a combination of a Company and a Trust..
Please correct me anywhere I’m wrong, as I’m still learning and would welcome the input.
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorOriginally posted by redwing:Individuals, partnerships and Companies are all legal entities a Trust I believe is not; all liability falls on the trustee, however, I’ve seen contrary information that says a Trust ‘is’ a legal entity?
A trust is a legal entity and if all requirements ae met, can live forever just like a company. Liability can fall on the trustee(hence the company trustee worth $2) as the trustee makes all decisions for the trust.
CATA
Asset Protection Specialist
[email protected]Originally posted by Cata:A trust is a legal entity and if all requirements ae met, can live forever just like a company. Liability can fall on the trustee(hence the company trustee worth $2) as the trustee makes all decisions for the trust.
CATA
Asset Protection Specialist
[email protected]Hi Cata..
In Rentons book on Trusts (3rd Ed) He says..
“It should be noted that a Trust is not a legal entity. (However, the GST legislation treats Trusts as entities for purposes of that legislation.)”..Page 5 ?REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorA trust has its own common and tax laws. The people who benefit from any distributions made by the trust can not be held liable for the actions of the trust. The trust owns the asset and because there is no shareholders, there is no ownership of the trust. Something that is not owned by anything else must be a separate entity(and therefor no-one can be sued for ownership of the trust)
CATA
Asset Protection Specialist
[email protected]Thanks once again cata
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorOriginally posted by FFComm:The standard structure is a trust with a company controlling the trust (know as the trustee or corporate trustee).
The reason why we have that structure is that it reduces our CGT to 15% (rather than 30% for companies, 15% for trusts & indivduals) and we have a corporation as trustee because we have higher protection from lawsuits.
It would prob. be best to see an accountant.
FFComm
FFComm
I am not sure where you get the 15% CGT from. A company/trust structure would not result in CGT being reduced to this rate.
eg. Assuming there was a capital gain of $100,000, with the 50% discount, the assesable gain would be reduced to $50,000 if it was distributed to an individual.
If the gain was distributed to a company, there is not discount. The company would pay $30,00 tax.
The individual may pay a maximum of 50% tax on this (or 48% plus medicare levy). So this $50,000 gain would become $25,000 after tax.
This equals 25%.
Of course, if the individual had a lower taxable income, then there would be a lower rate still, but not necessarily 15%.
Where did you get this rate from?
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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