All Topics / Help Needed! / Do I as an individual need to form a “Trust” ?

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  • Profile photo of kwarriorkwarrior
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    @kwarrior
    Join Date: 2008
    Post Count: 14

    I understand that there are trusts and there are trusts…

    As an IT Professional, I am into putting in place a "Structure" to be the basis of my new venture into IPs over the next 18-24 months…

    With so much advise and DVDs and education, as an Individual, with not much family around (so having multiple beneficiaries in Trusts may be difficult)…I really am at a dead end…

    Should I just go out and buy my IPs in my own name…my marginal tax rate is at the highest bracket…therefore I benefit directly from purchasing in my name…OR should I go with a TRUST….and then struggle with Lenders who lend at higher rates, or not at all….

    Help !! Any advise / experience will help….

    Cheers
    KW

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

    KW

    Not sure who told you that lenders will not lend to a Trust structure because that simply isnt true.

    Admitedly some lenders are not keen but a good mortgage broker should be able to guide you through the maze.

    As to whether this structure is the right one for you without a lot more information on your investment objectives and your own individual circumstances is to development to comment.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of Tysonboss1Tysonboss1
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    @tysonboss1
    Join Date: 2007
    Post Count: 306

    If I would you I would go for a trust,

    Put the debt in your name so that you can claim the deductions, It doesn't matter if you don't have any beneficiaries, Use the company/ trust format where the company is trustee of the trust and you are the director of the company, that way any profits you get can be passed to the company where the tax rate is capped at 30%.

    Profile photo of ErikHErikH
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    @erikh
    Join Date: 2007
    Post Count: 118

    KW I struggled with this one for quite while myself. We bought our first few IP’s in our own name but have since started using multiple trusts (which in QLD can help you to avoid paying land tax). You need to consider what you want to achieve with your structure: asset protection, tax minimisation or estate planning or some combination of those and if it’s a combination then which one is most important.

    Then you need to understand what you investment strategy is, i.e. buy and hold or buy, renovate and sell, positive or negatively geared or whatever.

    Then think about what your approach / attitude to risk is.

    Once you have that on paper, think through the structure options and then go and speak to some accountants and solicitors. I spoke to a handful and got different answers from each of them! That didn’t help at first and I needed to do a lot of thinking to be clear about our priorities before I could decide on which way to go. Sorry, no clean cut answer…

    If you get to the point that you suffer from analysis paralysis and find a good deal just buy the first one in your own name and then sort out your structure later.

    Profile photo of AphexAphex
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    @aphex
    Join Date: 2003
    Post Count: 25

    I would suggest that you only go for a company/trust arrangement if you are going for a buy and hold stratagy. If it is for property that you are purchasing as shorter term reno's you may find that the extra tax complications and set up costs outway the benifits.

    I haven't had any problems with lenders giving me loans for trusts, just don't expect the loans managers to immediately know what to do though as often you need to initially explain to them how they work.

    Profile photo of kwarriorkwarrior
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    @kwarrior
    Join Date: 2008
    Post Count: 14

    Company / Trust….I read about this from Chan and Naylor….

    Simple background…so I know guys like Richard (who posted above and I found him to be very helpful with his comments for other subjects)…

    I own my home, worth 500K…and have just created a Line of Credit on it (in my name) with a Bank for a limit of 400K. I also have a 100K that I can call upon to use…

    I believe that I need some sort of protection….just in case…AND I am in the IP market for about 2 to 3 props over the next 18 months..one of which was (as per one of my earlier calls for help ..a habit forming….) is an off-the-plan one….

    I dont have anybody other than the wife who will help…and I am the only income earner…with the highest Marginal Tax rate…

    Am I moving in the right direction ? Where can I get more info on a Company / Trust ? Will my accountant help set this up or do I need another professional ?

    And…to all those who go out of the way to comment and advise…sincere "thanks" !!!

    KW

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

    hi KW

    You should talk to a good accountant about setting up a trust. Since you have some cash, you could gift that to the trust after it is settled and should discuss the consequences of this with the account – you could loan it or gift it.

    Since your wife is not working, I assume she earns no income, so you could distribute income to her – up to $16,000 pa without paying tax. Future children could be beneficiaries too and they would be entitled to $2600 pa without having to pay tax. So if you had a wife and 2 kids with no other income that is $20,000 per year tax free. If you had a $20,000 pa investment income in your own name you would pay close to $10,000 in tax!

    Well worth the set up i think, and we haven't even considered the asset protection issues.

    And as Richard said, i can't think of any lender that charges more for trusts. If you can qualify for finance on your own, having a trust will not make things harder – in fact they can make qualifying for finance much more flexible down the track.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of kwarriorkwarrior
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    @kwarrior
    Join Date: 2008
    Post Count: 14

    Hi all…

    So much good advice there….many many thanks…

    Ok, as Aphex says, I will have to go ahead and create a Company ….become the Director, and then the Company becomes the trustee of the Trust (is this a Unit Trust or a Property Investor Trust?).

    And would this allow me to take advantage of the Neg Gearing initially ?

    And would I need to create additional Trusts for every Inv Prop I decide to buy ? I plan on acquiring a couple at least if not more over the next 6 months….

    Keep the advice going, mates….you wont believe how helpful all of you have been…

    Cheers
    KW

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

    KW

    Before you jump in there with all the expense just make sure that is really what you need.

    Whilst i cant think of too many lenders who charge more for borrowing in a Trust I can think of a lot that dont offer such favourable rate and fee discounts when the Trustee is a Pty Ltd Company.

    Also i would talk to a good Property Accountant specialist before going down the PIT route as the ATO have certainly some raised eyebrows on these types of structures and financiers have followed suit.

    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 kwarriorkwarrior
    Member
    @kwarrior
    Join Date: 2008
    Post Count: 14
    ErikH wrote:
    KW I struggled with this one for quite while myself. We bought our first few IP's in our own name but have since started using multiple trusts (which in QLD can help you to avoid paying land tax). You need to consider what you want to achieve with your structure: asset protection, tax minimisation or estate planning or some combination of those and if it's a combination then which one is most important. Then you need to understand what you investment strategy is, i.e. buy and hold or buy, renovate and sell, positive or negatively geared or whatever. Then think about what your approach / attitude to risk is. Once you have that on paper, think through the structure options and then go and speak to some accountants and solicitors. I spoke to a handful and got different answers from each of them! That didn't help at first and I needed to do a lot of thinking to be clear about our priorities before I could decide on which way to go. Sorry, no clean cut answer… If you get to the point that you suffer from analysis paralysis and find a good deal just buy the first one in your own name and then sort out your structure later.

    Erik…many thanks for your advice….cheers KW

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