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  • Profile photo of Ben SBen S
    Participant
    @noirlust
    Join Date: 2018
    Post Count: 2

    I have been looking into a Discretionary family trust. I was hoping to get a little more insight from some of the educated people on this forum.

    Currently there is a property in my mothers name and being rented out out for the past 6 months. We were looking at moving this property into a newly started trust, and then adding more properties to the trust over the upcoming years.

    There would be three beneficiaries (myself/brother/sister)

    We would have to pay stamp duty on acquiring the property into the trust, my mother would pay a small capital gains amount. I have been told to check the costs of land tax as well, i have been told varying reports of what to expect and what others are paying on multiple investment properties.

    Is it worthwhile in the long run to go in the direction of the trust or should my mother keep things in her name and invest from there.

    Appreciate any input,
    Thanks
    Ben

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Why do you want to transfer the property to a trust?

    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 Ben SBen S
    Participant
    @noirlust
    Join Date: 2018
    Post Count: 2

    Future planning on further investments.
    The ability to distribute the income of future properties.
    Asset protection.

    We are looking at building a small portfolio of positively geared properties.

    I was told to look into a Family trust, which i have found there would be a big cost in setting up, is it going to be worth it in the long term.

    Or is this a pointless way to go about it?

    Ben

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Well lots to consider. You really need to do some reading and then seek specific legal advice.

    Perhaps work out the costs first.

    I have only ever had a few clients who have done this a and they had heaps of equity so it was done as part of a debt recycling strategy as well.

    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 SteveSteve
    Participant
    @steve70
    Join Date: 2015
    Post Count: 10

    Ben,
    Family trusts can be a great tool or can cost you money, here is a great little ebook to read as a heads up, more so that you can work out what questions to ask when seeking legal or Finance advice.
    Its all about making an informed decision.
    https://docs.wixstatic.com/ugd/9504d2_b25007127d1b4355bf54388d70fc77a3.pdf

    Cheers

    Steve

    Steve
    Email Me

    The devil is in the detail, always ask why?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Bloody hell Steve, are you the author of that booklet? The author appears to be a mortgage broker with no legal qualifications. There are some good points in there, but many errors, especially about the finance and asset protection side of things.

    Why would a mortgage broker write about a complex legal arrangement such as trusts?

    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 SteveSteve
    Participant
    @steve70
    Join Date: 2015
    Post Count: 10

    Terry,
    The intent of the ebook is to prompt the reader to identify what they dont know and ask questions from their accountant, FA or solicitor. I would be interested for you to identify the points which are factually incorrect always willing to learn. I do accept that trusts are complex and my experience with some accountants and FAs have been to recommend them for their own self interest. The ebook is general in nature and as indicated sometime people don’t know what they don’t know and as such blindly adopt trusts to their own detriment. The key point in the book is to get good advice, do a cost benefit analysis and make sure that a trust suits your needs and always ask lots of questions and ask why would that be best for me.
    Please email me with the points which you thing are incorrect.

    • This reply was modified 1 year, 8 months ago by Profile photo of Steve Steve.

    Steve
    Email Me

    The devil is in the detail, always ask why?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    But this is legal advice and a broker shouldn’t be giving advice on trusts. An accountant couldn’t even advise on trusts like this and financial planners even less. Best to leave trusts to the lawyers I think.

    Your definition of trusts is wrong. A trust is a legal relationship where one person holds property for the benefit of another under obligations. A trust may only need an ABN if it is in business.

    A discretionary trust is a type of trust in which the trustee has discretion as to which beneficiary to distribute income and/or capital to.

    Asset protection with a discretionary trust arises from the bankruptcy of a beneficiary. The assets of the trust are generally not property that can fall into the hands of a trustee in bankruptcy. If the trustee is sued, however, the assets of the trust will be at risk because of the trustee’s right of indemnity.

    “Beneficiaries not being registered in the trust deed” – this doesn’t make sense. A beneficiary doesn’t need to be registered in the trust deed. A person just has to be a beneficiary which could be possibly without them even being named in the deed.

    Holding costs for trusts can be nil upwards. There are accounting fees which will depend on what the trust does. A trust holding one property may be $600 or so. Not sure what governance fees are.

    The whole section on loans is misleading.
    A trust is not a legal entity so the property cannot be in the trust name. The property and loan would be in the name of the trustee. The trustee would generally be the borrower with any individual director of the trustee giving a guarantee to the loan.

    I would say probably 95% of lenders lend to trusts.
    Some lenders do charge higher rates, but generally the rates will be the same or similar to loans to individuals. Westpac are generally not good for trusts, but St George are great.

    Borrowing capacity could be greatly improved with a trust – I have written a thread on that here somewhere. Can’t say I have ever encountered a lender insisting on a 25 year loan for a trust. Some lenders do charge a fee for their solicitors to review the trust deed to make sure the trustee is allowed to borrow and mortgage – fees are about $300 to $400 usually.

    Etc etc

    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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