Hi
Can someone explain or put in simple terms about Trust, Trust company ? for property investing?
What does it actually do or benefit us?
thanks
A trust is where someone (trustee) owns something in their name for someone else (beneficiary). There are many different types of trusts, but the most common for investing is a discretionary trust. This is where the trustee owns a property for a wide class of beneficiaries. Any profit is distributed by the trustee to the various beneficiaries (usually of one family) in a way so that the tax is minimised.
Because the trustee only owns the property for someone else, if he were to go bankrupt then the property is not considered his and is pretty safe from creditors. If a beneficiary goes bankrupt then the trustee simply stops giving them money – otherwise their creditors will get their hands on it. This is the asset protection side.
A company is a separate legal person and can own property. Companys are less flexible in terms of income, and so are not usually used to own property – except as a trustee. Since companys are separate legal persons they are able to be sued. The shareholders behind a company are generally safe if a company is sued – they can lose what they paid for the shares, but can't be pursed for the company debt.
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
Hi Terry,
I noticed you mentioned the following in your above post:
“There are many different types of trusts, but the most common for investing is a discretionary trust. This is where the trustee owns a property for a wide class of beneficiaries. Any profit is distributed by the trustee to the various beneficiaries (usually of one family) in a way so that the tax is minimised.”
I’ve been reading any and every thread on trusts that I can get my hands on (the taxation implications, purchasing/financing structures, and legal considerations of property investing are the topics my brain seems to take a little longer to feel ‘click’ into place). I don’t have as many dramas with the different strategies I’ve seen listed (buy and hold, reno, wrap, etc.), and other concepts and terminology (rental yield, return on investment, negative/positive gearing, etc).
So, in reference to your comment – you mention that a discretionary trust is (a) most common for investing, and (b) where a trustee owns property for a wide class of beneficiaries.
What is your view on the appropriateness of a discretionary trust for a single investor/beneficiary (i.e. me)? That is, I am single (unmarried, no significant other) and have no financial dependents/children – any subsequent beneficiaries are not on the scene at the moment.
As always, your responses are greatly appreciated (and super informative)!
Cheers,
Stacey
Being single shouldn't matter.
Even if you are the only beneficiary for now you can add a company later if your personal tax rate hits 30% or more. this way the trust can distribute the income to the company which would pay a max 30% tax.
In addition you may get married, have children, adopt, get some step sisters, or some how end up with family on lower incomes to yourself who could then be beneficiaries.
There are also the asset protection benefits.
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
Stacey
What is your view on the appropriateness of a discretionary trust for a single investor/beneficiary
Very simply circumstances change.
You may get married, have children, divorced or invoved in a professional or occupation where you feel that you need to protect your assets.
Sometimes some careful initial planning can save you thousands down the track for a variety of reasons.
Of course if you need to claim the negative gearing available on the property from day 1 then Buying in a DFT may not be the way to go for you.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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