Forums / Getting Technical / Legal & Accounting / What is your structure???

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  • Profile photo of act09act09
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    @act09
    Join Date: 2004
    Post Count: 4

    Hi All! I've been lurking here for a while now and I'm curious as to what structures you all use for your property and other ventures.

    It would be good to see what the most popular one is.

    Cheers,

    act09

    Profile photo of BrisbaneAndyBrisbaneAndy
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    @brisbaneandy
    Join Date: 2009
    Post Count: 45

    Hi Act,

    I'm literally in the middle of setting up my new structure so am happy to share.  I currently have two properties (PPOR and a +ve cashflow inv) in my own name.  The only reason the IP is in my name is I had to move quick on the settlement and couldn't set up the trust in time.

    Now though I am setting up a family trust with a pty ltd trustee (with me as sole director and shareholder).  The trust will be used for my next property and all subsequent one's.  I'm also setting up some businesses and these companies are being held in the trust as well (well the trustee owns the shares on behalf of the trust but you get my point).  The businesses are only paying me a living wage and all profits are retained within the company of paid to the trust to offset any losses.

    Going with this setup it's unlikely I will own anything again in my own name except for future primary residences.

    Hope that helps and as an aside I'm using cleardocs.com to setup the companies and trust.  It's fairly straight forward (as long as you don't want to talk to someone!) and very cheap.

    Good luck,

    Andy

    Profile photo of act09act09
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    @act09
    Join Date: 2004
    Post Count: 4

    Thanks Andy, that's exactly the type of contribution I was looking for!

    Your structure is what I have in mind but I haven't done anything yet… watch this space!

    Cheers,

    act09

    P.S. Come on everyone! Let's have more details of other structures and why you chose them.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Hi Act09

    Firstly welcome to the forum and I hope you enjoy your time with us.

    One thing about structure you have to realise is it is not a matter of 1 hat fits all.
    All the time we talk with clients who have different requirements and therefore the advice is tailored to suit the clients needs and the time and to be sufficient that it can be flexible enough to work with them.

    Certainly the structure that Brisbane Andy has set out may suit his needs but i can tell you will have many flaws when it comes to financing in some cases and also the initial cost will be higher than a standard DFT structure with Personal individual trustees.

    As always more information would be required to provide a more structured answer.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of traceyimbtraceyimb
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    @traceyimb
    Join Date: 2003
    Post Count: 82

    Hi Act09,

    I agree with Richard.  Be careful with your structure.  You may find you have a lot of hoops to jump through when it gets to financing the deal.  Speak with your broker or bank and ask the issues in getting finance in the structure you have decided upon BEFORE you set it up.  Some investors have set up complicated structures only to find out they have made it so much more difficult to get the finance approved or the lender just won't do it at all.  And if you can't get finance – you can't invest.

    I don't want to scare you off but you may be limiting yourself if you get too complex.  Just a heads up!

    Cheers,
    Tracey

    Profile photo of traceyimbtraceyimb
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    @traceyimb
    Join Date: 2003
    Post Count: 82

    Hi Act09,

    I agree with Richard.  Be careful with your structure.  You may find you have a lot of hoops to jump through when it gets to financing the deal.  Speak with your broker or bank and ask the issues in getting finance in the structure you have decided upon BEFORE you set it up.  Some investors have set up complicated structures only to find out they have made it so much more difficult to get the finance approved or the lender just won't do it at all.  And if you can't get finance – you can't invest.

    I don't want to scare you off but you may be limiting yourself if you get too complex.  Just a heads up!

    Cheers,
    Tracey

    Profile photo of BrisbaneAndyBrisbaneAndy
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    @brisbaneandy
    Join Date: 2009
    Post Count: 45

    Hi again Act,

    further to my comments I have to agree with Tracey and Richards warnings about complexity vs ease of finance.  I should have mentioned I used to be a home and business lender so can push things through my network that might not be an option for most people.

    The corporate trustee vs personal trustee is an obvious sticking point.  I have decided on the corporate trustee as there are businesses under the trust and all together the legal risk profile is increasing all the time (the number of small business people that can get sued and nuisance lawsuits is sickening!).  The setup costs aren't as bad as you may think but only because I have done it myself and the entire setup was about $1500 for 4 entities.  If I had used my lawyer it would have been $4k – $6k.  The ongoing costs aren't fun either and I know I'll be spending over a grand pa just on filing fees but for me this is well worth it for setting it up right (for me) from the beginning.

    Good luck and hope this helps a bit more,

    Andy

    Profile photo of aaabbbcccaaabbbccc
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    @aaabbbccc
    Join Date: 2009
    Post Count: 71

    Do you also list your corporate trustee as a beneficiary to the discretionary trust? Alternatively would you list another separate company as a beneficiary to the trust?

    I imagine this may be good in years where your trust income is unusually high, and some of that income can be ‘stored’ within the beneficiary company before being paid out to yourself (as a sharholder) as a franked dividend at a later date.

    Or do the costs (or any other reasons I’m missing) make it not worth doing this…

    Cheers,

    .

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
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    Brisbane Andy

    Hope you haven't got assets and a business under the same trust – could be risky.

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

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

    Profile photo of TerrywTerryw
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    @terryw
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    Post Count: 16,110
    aabbcc wrote:
    Do you also list your corporate trustee as a beneficiary to the discretionary trust? Alternatively would you list another separate company as a beneficiary to the trust? I imagine this may be good in years where your trust income is unusually high, and some of that income can be 'stored' within the beneficiary company before being paid out to yourself (as a sharholder) as a franked dividend at a later date. Or do the costs (or any other reasons I'm missing) make it not worth doing this… Cheers, Adam.

    No real need to name a company as beneficiary as the wording of the deed is usually wide to include any company in which a major beneficiary/trustee is an office holder or share holder or director etc.

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

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

    Profile photo of TerrywTerryw
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    @terryw
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    Post Count: 16,110
    Terryw wrote:
    Brisbane Andy

    Hope you haven't got assets and a business under the same trust – could be risky.

    Hi Andy, sorry just read your post up the top. Your businesses will be run by companies with the shares held by the trust so that should be ok.

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

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

    Profile photo of BrisbaneAndyBrisbaneAndy
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    @brisbaneandy
    Join Date: 2009
    Post Count: 45
    Terryw wrote:
    Terryw wrote:
    Brisbane Andy

    Hope you haven't got assets and a business under the same trust – could be risky.

    Hi Andy, sorry just read your post up the top. Your businesses will be run by companies with the shares held by the trust so that should be ok.

    Morning Terry,

    just woke up and read your first reply and had a little freak-out moment!  Each of the businesses will be Pty Ltd with the shares owned by the trust so I'm happy with that amount of risk.  I had considered setting up two trusts, one with businesses and the other with property but it made it just a little bit too inflexible with moving profits and getting taxed.

    Thanks for your comments though, really appreciate them as I'm just a young(ish) self-made guy and there's only so much you can research and teach yourself!

    Cheers,
    Andy

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
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    Hi Andy

    If it is the company that is conducitng the business then the shareholder cannot be held liable if it is sued and you trust sounds like it is just a shareholder so you should be right. If the company goes down you just lose the shares.

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

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

    Profile photo of BrisbaneAndyBrisbaneAndy
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    @brisbaneandy
    Join Date: 2009
    Post Count: 45

    Yep, that's what I thought.  :-)

    Profile photo of EvolveEvolve
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    @evolve
    Join Date: 2009
    Post Count: 66
    aabbcc wrote:
    Do you also list your corporate trustee as a beneficiary to the discretionary trust? Alternatively would you list another separate company as a beneficiary to the trust? I imagine this may be good in years where your trust income is unusually high, and some of that income can be 'stored' within the beneficiary company before being paid out to yourself (as a sharholder) as a franked dividend at a later date. Or do the costs (or any other reasons I'm missing) make it not worth doing this… Cheers, Adam.

    BE CAREFUL

    If you dump profits from a trust on paper up to the trustee company (or any other company) and don't actually pay the cash, you could create a nice little thing the ATO likes to call a Div7A loan.

    This area is quite complex – but as a general rule this type of 'bucket company' arrangement should only be used as a last resort after your average tax rate has gone over 30% (note: average NOT marginal tax rate) and all other deductions / super have been maxed.

    Profile photo of RHPlanningRHPlanning
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    @rhplanning
    Join Date: 2010
    Post Count: 46
    BrisbaneAndy wrote:
    Going with this setup it's unlikely I will own anything again in my own name except for future primary residences.

    When purchasing a property do you use a new trust each time? And do you create a trust prior to making an offer or once an offer has been accepted? In that case, what name do you specify on the contract?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    RH

    Personally i hold about 5 properties in each Trust and think a separate Trust for each property is overkill.

    The Trust will need to be formed prior to going to Contract so assuming the Trust has personal Trustees the Contract names would read as :

    Jack and Mary Smith ATF SMITH Family Trust

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,110

    It depends on how valuable the properties are. And in some states there is no stamp duty on a trust deed – so they are very cheap to set up, (no stamp duty in QLD i beleive, it is $550 in NSW now)

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

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

    Profile photo of RHPlanningRHPlanning
    Member
    @rhplanning
    Join Date: 2010
    Post Count: 46

    Thanks guys, appreciate the response. So just to confirm – this would apply to Unit Trusts as well? And I guess if the trustee was a company, that company should also be created prior to making an offer?

    Can the Unit Trust allocated units be easily transferred amongst the unit holders after it has been setup?

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,110

    Yes, an entity should be created before it is able to enter into a contract. I think there are exceptions for promoters of companys who can enter into contracts before the company comes into existance, but you don't want to risk being charged stamp duty twice (once on your signing and then on the deemed transfer from you to the company).

    Units are easily transferred, but stamp duty may apply, depending on the State you are in.

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

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

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