- GuyParticipant@guyhJoin Date: 2016Post Count: 2
Hi all, am new to this forum and in need of some advice.
My wife and I currently have three properties in our name. After reading Steve’s book we think it will be beneficial to start a family trust.
My question is, are we able to set up a trust and move our existing properties into this trust or are we stuck with them in our name?Corey BattParticipant@cjaysaJoin Date: 2012Post Count: 1,010
You can move them into a trust but this is generally a stamp duty event – so you’d have to pay stamp duty on the current value of each property which can be quite substantial in costs.TerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
Transfer to a trustee or a declaration of trust with no transfer will result in both stamp duty and is a CGT event. There are also asset protection consequences which will vary depending how you do it.
In short you would have the following costs:
loan exit fees and mortgage discharge
trust set up
new loan fees (if any)
However, it may still be worthwhile doing where there is still non deductible debt on the main residence. I am doing one now for a client for a $1mil property.GuyParticipant@guyhJoin Date: 2016Post Count: 2
Thanks for the advice guys, not exactly what we wanted to hear haha but very much appreciated
When I was making my decisions re purchasing in “my name or a trust”, I was heartened by ideas I heard from other investors. In essence, their “take” on things (while in the accumulating phase) was to keep borrowing against one IP to purchase another. In that way, any large chunks of equity were already “spoken for” in the form of a mortgage. This means that any equity you might have is tied up in mortgages, or in small chunks across numerous IPs.
You might have $1m in property, but only $100k to $200k could be said to be “yours”. And, if someone DID take you to court, then all of the selling costs, CGT, etc would eat up that $100k+ leaving three-fifths of five-eighths for those who are attempting to attack you. This fact then leaves any potential litigant in the “Is it worth it?” mindset.
So, where to from here? Hell, I don’t even know for sure whether the following can be done, (I think it can) but do check it out:-
Is your position such that you might set up a Trust, then borrow against your existing IPs for Deposit/Costs to purchase an IP in a Trust? Rinse and repeat!
This can then “move” your unprotected equity into the Trust over time, without invoking CGT, etc. As time passes, you would concentrate on keeping most Equity in Trust-owned IPs, while continuing to “milk” the early IPs for their extra equity as it becomes available.
Howzat?? Maybe that is news that is less difficult to swallow? ;)
BennyAlistair PerryParticipant@aperryJoin Date: 2004Post Count: 891
Great post Benny,
I wouldn’t be too concerned about having the properties in personal names, most people start out this way. It would be worthwhile making a full appraisal of your structure and work out a strategy for future purchases and also what to do with any money crystalized from the sale of any of the exiting properties. All investors should do this periodically, as your situation is always going to be fluid.
RegardsYllenkParticipant@jamesknellJoin Date: 2016Post Count: 2
My understanding is that a trust cannot distribute taxable losses – meaning that you cannot negatively gear any losses against your personal income. You could however negatively gear these losses against other cashflow positive assets held in the trust.
“My understanding is that a trust cannot distribute taxable losses”
Some Trusts can… but that whole area is one where professional advice is required. Do check out your options with a suitable adviser (some on here might be of help, but not me !!)
BennyPatrick OwParticipant@pengowJoin Date: 2016Post Count: 7
I am not clear as to the main reason why you want to set up a family trust – tax purposes, asset protection, etc.
I guess the answer to your question is determined by the reasons for having a family trust in the first place and what kind of trust is it.
PatrickTerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
Benny trusts cannot distribute losses but what you may be thinking of is some borrowing to subscribe to units of a fixed unit trust and the trustee using that cash to pay for the property. Those borrowing to buy income oroducing units could claim the interest against their own income. If they are individuals and the interest is less than the trust income recieved there would be a loss and this loss can reduce other income. Ie negative gearing in personal name with property owned by the trustee.
Benny trusts cannot distribute losses but what you may be thinking of is some borrowing to subscribe to units of a fixed unit trust and the trustee using that cash to pay for the property. Those borrowing to buy income oroducing units could claim the interest against their own income.
That sounded to me like how a Hybrid Trust works. It is a Hybrid Trust I was thinking of – there may be other kinds of Trusts that I have no knowledge of….