Forums / Getting Technical / Legal & Accounting / Partnership – JV – Unit Trust & Discretionary Trust as Trustee

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  • Profile photo of HanyHany
    Participant
    @hmehany
    Join Date: 2015
    Post Count: 3

    Hi All,

    First time here, I have been reading a lot about the trust structure but would still have some questions to clarify, I would still go to a laywer/Accountant, but would like to know what is the correct thing before I go, as I am loosing faith you get told the best thing in your favour unless you have done your own homework and you are really lucly to find some very experienced legal asdvisor/Accountant.

    We are 3 individuals (each has a family) who would like to establish a property investment together. idealy purchase … build new duplex and rent out, with the new equity, we borrow again, build and rent our and so on.

    Mr A, Mr B, and Mr. C with 33.33% each,
    Mr. A has enough cash and enough money in equity
    Mr. B has enough enough money in equity, not in servicing
    Mr. C has good servicibility, not much equity.

    We think the best structure for 3 of us is to creat a Unit Trust with decided 33% for each individual, the Unit Trust buy the land, where Mr. C now repay the bank loan untill building is complete and rented.
    Mr. A and Mr. B take loans against their properties/Equity/Cash and lend it to the trust or directy fund the construction, which would become their Shares then

    The Unit Trust is then owned by 3 discretionary Trusts, one trust each, so each individual can distribute the profit from the unit trust withing his family as he needs, and also to protect perosnal assets …. does this then requir a company with Pty on top of the 3 DT? so the structure become a Company with Pty Ltd owns 3 x DT for the 3 Individuals and each DT owns 33% of the Unit Trust …. does this make sense or we are going to $$$$ structure that is not required and does not make sense?

    Will Mr. C be able to claim negative gear from time they purchase the land to time construction is complete and there is a positive income?
    Will Mr. A and Mr. B be able to claim lost of interst when they directly fund the construction or lend the money to the Unit Trust?
    Who will be borrowing the money for the land? the unit trust, or the 3 x DT trust or the Company on top of all? and would then liability be on the company not on individuals?

    Any advise who in Perth specialise in this to do the Deeds, I would still appreciate you feed back on what you know is the most correct structure

    Thanks in advance.

    Regards

    HM

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    I think you should seeks professional help with such a set up. You need to speak to a lawyer who understands tax and a broker and you might want to consider several structures

    If a trustee owns the land Mr C cannot negative gear it.

    If A and B are borrowing money to lend the trust they will have interest which isn’t deductible unless the trust is paying market rate interest and terms.

    The borrower will usually be the owner of the land which would be the trustee of the unit trust. Directors of the trustee and perhaps the unilt holders will need to guarantee the loan. Liability is on the borrower and the guarantors – that is why you want to minimise guarantees.

    You could speak to Brett Davies over in Perth about this sort of thing.

    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 Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Well said, Terry.

    I will just add to the above that once this setup is in place, all three gents are locked into it moving forward (servicibility wise). Reason being is that most lenders will assume each is fully liable to the debt of the trust but is only getting a portion of the income. Add to this that there will be no NG, and it’s easier to see why such a setup would limit future options of the parties.

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of HanyHany
    Participant
    @hmehany
    Join Date: 2015
    Post Count: 3

    Thanks Terry

    We have already sat with a broker but was wondering should we sit with a lawyer or accountant for such setup to get the best advise, any better ideas to limit liability? And maintain flexibility?

    Profile photo of HanyHany
    Participant
    @hmehany
    Join Date: 2015
    Post Count: 3

    Thanks Ethan,

    Any suggestions of better structure? To allow more flexibility in future investment and limit liability

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    If I were you, I would seriously consider scheduling a Skype meeting with Terry. This is exactly his area of expertise 👍😎

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    This would be legal advice so a lawyer would be the go. An accountant can advise on the tax aspects only.

    I am too busy to take on new clients ATM.

    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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