All Topics / Legal & Accounting / Buying a house in a Family Trust

Viewing 20 posts - 1 through 20 (of 21 total)
  • Profile photo of Nina_VNina_V
    Member
    @nina_v
    Join Date: 2012
    Post Count: 3

    Hi,

    My family wants to creat a trust with three properties in the trust.
    We have spoken to a attorney and they said that the following would work better:
    1.  Creat a company and make the company the owener of the three houses
    2.  Create three trust for each couple, and the trusts own the company

    I would like to know if this is a good or a bad idea…

    Regards

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

    Is this in Australia?

    Sounds like you mean:
    1. Create a company as trustee and legal owner of the property, and
    2. the company will act as trustee for 3 separate trusts. 1 for each family.

    I would not recommend this because. Setting up a company is cheap so you might was well have a separate company for each trust.

    You need to worry about control of the company. 2 families could control the trustee and disadvantage the 3rd family. There will also be deaths and divorces possibly and control could pass to others outside the family.

    If there is one company then all members would have to guarantee all loans too. Bad for asset protection and bad for serviceability.

    The only positive point is you will only have one asic fee each year which will save you about $220 pa per company.

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

    Profile photo of Nina_VNina_V
    Member
    @nina_v
    Join Date: 2012
    Post Count: 3

    I am in South-Africa.

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

    This is an australian investing site.

    Same or very similar principles would apply though

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

    Profile photo of Nina_VNina_V
    Member
    @nina_v
    Join Date: 2012
    Post Count: 3

    Thank you for your opinion.
    I just wanted to get some opinions before I jump into something this big.

    Profile photo of slavslav
    Member
    @slav
    Join Date: 2012
    Post Count: 2

    At the moment I am looking at starting a familly trust and buying properties for us to live in, but not sure which will be the best way. And will it be advisable to transfer the super into the trust and self manage it?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    slav wrote:
    At the moment I am looking at starting a familly trust and buying properties for us to live in, but not sure which will be the best way. And will it be advisable to transfer the super into the trust and self manage it?

    You need advice to set up the structure.

    You cannot transfer your super into a trust unless you have met a condition of release. But if that is the case why would you as the CG and income inside a superfund would be exempt from tax at that stage.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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

    You are unable to live in a property or rent it to a related party where the property is owned by a SMSF.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of slavslav
    Member
    @slav
    Join Date: 2012
    Post Count: 2

    thanks for the advise

    Profile photo of Stu1Stu1
    Member
    @stu1
    Join Date: 2012
    Post Count: 2

    There are both legal and financial implications to consider before putting property into companies, trusts and other business entities, as opposed to being owned directly as individuals. On the legal side there are protection and inheritance considerations. On the financial side there are significant taxation implications (both regarding rental income and capital gains on sale). In many cases the timing is crucial. These are complex issues that require specialist legal and accounting advice that suit your circumstances.

    mcho7688
    Participant
    @mcho7688
    Join Date: 2011
    Post Count: 24

    About the same situation, I have purchased 2 properties under both me and my partners' names as the trustees to the trust. However, after the purchase, my accountant was telling us that if we were to be involved in legal cases under our own names, it would also involve these 2 properties under this trust. Our intention was to have asset protection with the use of trust, but it seems that we are using the wrong structure? If anyone could advise.

    Thanks.

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

    Wrong set up. Or maybe better, a less than ideal set up. Your accountant is only half correct too.

    Firstly it is not such a good idea to have people as trustees for a few reasons. One is asset protection. If the trustee is sued in their capacity as trustee than all their personal assets are at risk.

    It is also not good to have 2 trustees for a few reasons:

    1. If the trust goes down both trustees go down with it.

    2. Personal guarantees are usually required. If you have 2 trustees then both are at risk as will need 2 guarantors.

    3. Because of 2 you will have a reduced borrowing capacity.

    Your accountant is wrong in that if you are sued personally and go bankrupt then assets held on trust are not property that can be seize by a trustee in bankruptcy – generally.

    This is why it is important to get advice when setting up structures.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    mcho7688
    Participant
    @mcho7688
    Join Date: 2011
    Post Count: 24

    Thanks Terry.

    I will certainly discuss in more details with a few accountants how to rectify this situation, especially trustees issue.

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

    This is a legal issue so you should speak to a lawyer.

    If you want to change trustees it will be complex.

    1. Review stamp duty rules for state of properties and

    2. review deed to make sure trustee can be change and how, and if there will be stamp duty on the transfer of title. In NSW there could be if the trustee is a beneficiary.

    3. Seek legal advice on the structure of the company which will be trustee.

    4. Apply for new loans in the name of the new trustee and personal guarantee of the trustee company.

    5. Seek tax advice on the proposed set up. Probably no CGT.

    6. arrange a settlement.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    mcho7688
    Participant
    @mcho7688
    Join Date: 2011
    Post Count: 24

    Yup. Note taken. Thanks, Terry.

    Profile photo of JessicahsmJessicahsm
    Member
    @jessicahsm
    Join Date: 2012
    Post Count: 7

    Hi, I have been told to setup a family trust due better (Asset protection, legal Tax minimization as profits distributed to trustees and borrowing capacity as I am thinking to buy more than 4 properties) however i am the only citizen who lives here and all my family lives in overseas and are not Australian citizen, Could someone please point me in the right direction? Many thanks in advance

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    Jessicahsm wrote:
    Hi, I have been told to setup a family trust due better (Asset protection, legal Tax minimization as profits distributed to trustees and borrowing capacity as I am thinking to buy more than 4 properties) however i am the only citizen who lives here and all my family lives in overseas and are not Australian citizen, Could someone please point me in the right direction? Many thanks in advance

    You need to seek better advice.

    Trust will not assist in borrowing capacity.

    Distributing to non residents is ok, but will result in higher taxes being paid. (citizenship is largely irrelevant, tax residence is what counts).

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Dan42Dan42
    Member
    @dan42
    Join Date: 2008
    Post Count: 619

    Hi Jessica,

    Agree with Terry, you are getting advice that isn't tailored to your situation.

    If the trust distributes profit only to you, then there is no tax saving. You would pay the same tax on trust distributions as you would on profit from rental properties if they were held in your own name.

    Profile photo of JessicahsmJessicahsm
    Member
    @jessicahsm
    Join Date: 2012
    Post Count: 7

    Thanks Terry and Dan. much appreciated. It looks like it is better to get the properties on my name is to go for my case. Thanks

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

    Why is it bettter to get in your own name? Sounds like you are jumping to conclusions prematurely.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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