All Topics / Legal & Accounting / Asset protection and Tax minimisation via Family Trust

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  • Profile photo of kong71286kong71286
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    @kong71286
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    Hey guys,

    I just had a few more questions about using a Family Trust structure

    1) Who can you include as beneficiaries of the trust? Is it limited to your wife and children? Or if you are not married, can you include your girlfriend? Brothers/sisters? Parents? Grandparents?

    2) Would a Family Trust be a good entity to purchase shares under?

    3) Should you have separate Family trusts for different investments i.e. one for shares, one for properties?

    Your help is appreciated,

    Regards,

    Kong

    Profile photo of TerrywTerryw
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    @terryw
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    1, anyone. Even future people – those not yet conceived. You do this by the wording of the deed. any children, step children, adpoted children of x. etc. The only condition is that they have to clearly fall within the definition in the deed so they can be identified for certain..

    2. yes, but there are special rules with dividends.

    3. would be better from an asset protection pov to separate them up. don't have all your eggs in one basket. May be tax advantages too.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of House CallHouse Call
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    @house-call
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    kong71286 wrote:
    From my understanding you have a 'company' that acts as trustee on behalf of your 'family trust' to purchase a 'property', whereby you act as the 'guarantor' and also lend the company the 20% deposit costs.

    Hi I want to gatecrash this thread with my own related question.  In the first entry Kong wrote the above.  We have a family trust, which does not own any assets itself. My wife is director of the company with her and our kids as benficiaries.

    How do we go about loaning the deposit 20% to the trust and then obtaining a loan for the other 80%?  For our other IP (in my wife's name) I have acted as guarantor as she was not working.  How would this work for a trust?  Would it be me acting as guarantor for the trust?  Or should I make myself a director of the Co. to make borrowing easier?

    Profile photo of kong71286kong71286
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    @kong71286
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    Hey Terry,

    Thanks for your concise answers =)

    With regards to the 'wording of deed' – can it be altered in the future, or is this a once off event, which you need to ensure you get right from the start?

    Kong

    Profile photo of TerrywTerryw
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    kong71286 wrote:
    Hey Terry,

    Thanks for your concise answers =)

    With regards to the 'wording of deed' – can it be altered in the future, or is this a once off event, which you need to ensure you get right from the start?

    Kong

    A deed can be altered if the deed allows it. But, changing a deed is very dangerous as it could cause a resettlement. If a resettlement happens then it is considered that a new trust is formed and all the assets of the trust are transferred to the new one. This means stamp duty and CGT would be payable. Adding a beneficiary could  result in a resettlement.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of TerrywTerryw
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    House Call wrote:
    kong71286 wrote:
    From my understanding you have a 'company' that acts as trustee on behalf of your 'family trust' to purchase a 'property', whereby you act as the 'guarantor' and also lend the company the 20% deposit costs.

    Hi I want to gatecrash this thread with my own related question.  In the first entry Kong wrote the above.  We have a family trust, which does not own any assets itself. My wife is director of the company with her and our kids as benficiaries.

    How do we go about loaning the deposit 20% to the trust and then obtaining a loan for the other 80%?  For our other IP (in my wife's name) I have acted as guarantor as she was not working.  How would this work for a trust?  Would it be me acting as guarantor for the trust?  Or should I make myself a director of the Co. to make borrowing easier?

    If you want to loan your trust money you should do it properly with written loan agreements.

    For borrowing purposes spouses can usually guarantee for the other spouse. If you a using a trust  lenders will ask each trustee and/or director to guarantee. If your non working wife is sole director then you may have to offer yourself as a guarantor too.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of House CallHouse Call
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    Thanks for response Terryw

    How can you know if you have reached your guarantor limit?  In that I have gone guarantor for my wife's IP and we have some more $ available to use for further deposits (which until now we were planning to just buy in her name again with me going guarantor for every new loan).  But does it make it more difficult for us getting a loan for a trust if we already have loans in individual name?

    Who is best to talk to-solicitor or accountant or financial planner? Or all?

    Profile photo of TerrywTerryw
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    for serviceability purposes guaranteeing a loan is the same as taking a loan in your personal name. So if you cannot qualify for a loan in your own name you won't qualify by using a trust.

    If you want to know the legal aspects of a trust then talk to a lawyer, tax aspects then to your tax advisor.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of House CallHouse Call
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    Terryw wrote:
    If you want to know the legal aspects of a trust then talk to a lawyer, tax aspects then to your tax advisor.

    OK I get it.  Thankyou.  Think I'll see both before we spend too much more.  I just want us to set it up correctly now so we don't regret doing things in a certain way in 5 or 10 years time when kids start leaving home, wife restarts work etc etc variable, variables, variables.

    Profile photo of kong71286kong71286
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    @kong71286
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    Thanks Terry!

    Profile photo of TerrywTerryw
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    No worries

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of kong71286kong71286
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    @kong71286
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    Heya Terry,

    I had a brief talk about setting up Family Trust to purchase shares with Mark Unwin today and he mentioned something about the need to have someone else (a non family member) donate some money to the trust E.g. $10 – being short on time I didn't get to ask him the reason 'why' this needed to be done – if you or anyone else could elaborate on this, it would be greatly appreciated

    Regards,

    Kong

    Profile photo of TerrywTerryw
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    The is the settlor.

    The settlor is the person that hands over the initial thing to the trustee to be held on trust – this is what starts it off. It is usually just $10, but could be anything really.

    There are various rules about the settlor not benefiting from the trust – so it should be someone unrelated who will never have the possibility of being a beneficiary. Often it is the lawyer or accountant that takes on this role.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of SamsonsSamsons
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    Hi all,

    Very interesting forum! I have one question. As per my previous question whether I could transfer my own home to make it an investment property and reading that that is not possible, what if you have a family trust? Can you transfer your home to it and rent it out through the Trust then any profit made, couldn't you distribute it to the different members of the family trust and therefore reduce your tax?

    Sam

    Profile photo of House CallHouse Call
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    You'd trigger a settlement and have to pay stamp duty I'd say which would take the shine of that otherwise great idea.

    (Not an expert)

    Profile photo of TerrywTerryw
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    Samsons wrote:
    Hi all,

    Very interesting forum! I have one question. As per my previous question whether I could transfer my own home to make it an investment property and reading that that is not possible, what if you have a family trust? Can you transfer your home to it and rent it out through the Trust then any profit made, couldn't you distribute it to the different members of the family trust and therefore reduce your tax?

    Sam

    You could sell your house to your discretionary trust. Any profit would then be able to be disributed to a wide variety of beneficiaries and it could potenitally save you tax.

    Down sides are you will pay stamp duty and your property is likely to be cashflow negative. Losses of a trust cannot be used to offset personal income. You may also pay more land tax in NSW.

    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 SamsonsSamsons
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    Thank you Terryw,

    It looks like the best option is to sell the family home and put all the money into the new house. Then later on look at investing in something else.

    Cheers,

    Sam

    Profile photo of CazziePCazzieP
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    @cazziep
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    Post Count: 24

    My partner and I have just started a discretionary trust with ourselves and our daughter as beneficieries. We have started a business and the income from my husband's share of work in a newly signed contract would otherwise be second income for him and attarct the highest tax rate. I work as a principal in the business but as yet have not brought in any of my own clients (though hope to change that soon!). It cost us $550 for the legal documents to be drawn up and accountants initial advice and that is much less than the tax which would have been due on the first month's work if it was not paid to the trust so I am very happy.

    As for buying IP, our accountant seems to think it is better bought in the name of  the highest tax earner if it is negative geared, although I admit I was having trouble focussing by the time we got to that part !

    Like Terryw he explained that the trust does not pay tax unless the profits are not distrubuted, it is the beneficiaries that pay tax after receiving it into their own taxable income (including the cat?).

    However, what I am not clear on is if, say, a trust has several assets and/or income streams, can they be offset against each other. Total income + gains against total expenses + losses from all sources equals profit to be distributed? If that is the case it seems like it can be very flexible with the right planning.

    Profile photo of TerrywTerryw
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    Hi Cazzie

    Yes, income from one source can be used to offset a loss from another ,such as a negative geared property if both are held in the trust. Just think of the trust as a separate person for taxation purposes. All their income and expenses are taken into account and then any profits are distributed.

    Just be wary of running a business in a trust though. There is no limited liability as there would be in a pty ltd company. So if the trustee is sued their personal assets are potentially up for grabs – as well as the other assets of the trust.

    It would be best to have a company as trustee or to have a company operate the business and the shares owned by a trust.

    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 CazziePCazzieP
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    Thank you Terry

    I'll make a note to take to next meeting with accountant.

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