Hi Guys
I would like people's opinion on a plan i have and any advice you could give me.
my patrner has 3 properties that we are looking to put into a discretionary trust for asset protection
a company will be set up as trustee with my partner as a director and as a beneficiery of the trust.
CGT will be payable on 2 of the properties although this wouldnt amount to much, the third property has reasonable CG but is our PPOR
with 95% LVR the properties would be neutrally geared maybe slightly pos.
Questions,
1) how easy is it to get 95% lvr for a trust?2)deposit,stampduty,lmi etc – how does the trust get the money for this and what would be the best way to go about it?
3)i understand that some banks require named beneficieries as gaurentors, is there anyway i could be a benificiery without being directly named?
4)we would have to pay early repayment fees on the properties, is there a way we could get around around this if the trust used the same lender?
any thoughts on the matter would be most welcome
thanks for your time
regards
pete
Hi Pete
Some answers for you below:
1) how easy is it to get 95% lvr for a trust?
A) With a DFT this is still possible.
2) Deposit,stampduty,lmi etc – how does the trust get the money for this and what would be the best way to go about it?
A) The Trustees can lend the money to the Trust however if you are looking to refinance then presumably you will need to find these funds from your own sources.
3)i understand that some banks require named beneficieries as gaurentors, is there anyway i could be a benificiery without being directly named?
A) Yes this is not the case with every lender. Some lenders do require the beneficiarys to provide a guarantee you are right.
4) We would have to pay early repayment fees on the properties, is there a way we could get around around this if the trust used the same lender?
A) Unlikely as the entities are different. Depends if you can negotiate this with your lender.
Must admit the cost of transferring the properties into Trust could be excessive given what you trying to achieve when you add up the Stamp duty, registration, LMI, CGT (where applicable). Are you wanting to take cash out of the existing properties to take the loan upto 95% ? This in its own right could be an issue with a related party.
Also the Pty Ltd Company as Trustee will have slightly higher set up costs as many lenders require the Trust Deed and Constitution to be vetted and charge upfront for this.
I can think of better ways to obtain asset protection and half the cost.
Richard Taylor | Australia's leading private lender
Here are my versions of answers:
1) should be similar to getting finance in your own name.
2) You could gift to the trust or lend to the trust. There are different tax and asset protection issues to be thought out with each of these.
3) Yes, even if you are not specifically named you may still be a beneficiary. the deed should be worded such that any relative of a named beneficiary is also a beneficiary. this could include non blood relationships such as marriage or defacto or adoption etc4) Some lenders may assist – but I agree with Richard that it may be unlikely.
I agree with Richard that this will be an expensive exercise – with all the costs added up you may be able to afford another property. But if you are going to do it, now may be a good time with the recent price drops minimising the gains.
For asset protection you may be able to do something much simpler such as increase the mortgages, or provide second mortgages to a trust etc.
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
thanks for that guys.
Richard can i ask what you are refering to when you mentioned taking cash out the property when refinancing could be an issue to a related party?
plan so far is to transfer the ppor into the trust 1st as this has cgt exception and also has the highest CG.
costs could be a killer but to start with trust/company set up fees, loan break costs, lmi, stampduty (approx 11000) app fees, legal fees.
the other 2 properties have little CG and we would have held them long enough to qualify for the 50%CGT discount, we may even move into 1 with the highest CG to reduce the cg as we are not expecting any cg in the coming months.
my partner is also looking at doing some travelling next fn year so would be an ideal time to the transfer them into the trust as she would have little income.
your assumption was right also richard in that we will be taking cash out the property when we refinance into the trust at 95%, what issues can this cause?
we will loan money to the trust forstamp duty, costs and deposit. i take it we loan the trust more in order for it to make repayments to the beneficeries as the mortgage should be covered by rent.
im aware that money we loan is our asset and can be taken back if sued but we are not at present in a highrisk situation of being sued although we may be in a few years.
thanks again guys
pete
Most lenders will look at lending to a trust in much the same way as an individual, but with a few additional requirements.
These being –
Beneficiaries will usually have to provide Guarantees for the loan.
You will need to provide a trust deed
The trust deed will have to specify the proposed activity is part of the intended activities of the trust.
LVR Limits and LMI costs will be just like a normal loan.Also, I do not believe you will be taking out ANY cash. All the money that the trust borrows will be going towards paying the vendor of the property. You. No actual cash out is required. You, as an individual (or a couple) will have cash left over from the sale of your asses to the trust. No problems there.
I agree with the others, in the sense that this sounds like an expensive exercise considering the apparrent benefits but I am sure you have your reasons.
Best of luck.
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