All Topics / Help Needed! / Thoughts on setting up a trust to hold an inherited investment property

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  • Profile photo of JarteeJartee
    Join Date: 2018
    Post Count: 1

    Not sure if this should go in help needed, or getting technical… so sorry if I’m posting to the wrong board.

    I’ve done a bit of research into DFT’s and was just curious if anyone could shed some light… either advice on my own thoughts/research, or recommending who the best type of professional to talk to would be… I think that the situation requires legal and perhaps some type of tax planning taking into account sourcing and control of a trust.

    Basically, this situation is that an investment property (a duplex) has been left to an individual A (child of the deceased) who is also a joint executor of the will. The individual is in their late 50’s and has a married child C (potentially with grandkids later on). For sentimental (and investment purposes) the intention is to transfer the property (clear title, no outstanding loans) into a family trust, with L being the trustee initially.

    Could a trust be established for the family unit of A and C, C’s spouse and any offspring down the line, and could the property be transferred directly from the estate to A as the trustee of the new family trust… or should a corporate trustee be setup, and the property transferred to A, who would then gift it to the corporate trustee… A would be the director of this company and act as trustee in that capacity. I believe it often makes the most sense to have a corporate trustee as it’s easier for control to be passed in the event of heath or other issues (especially if A is also appointer).

    The trust would then take out a loan and purchase a second property, with rental income from the duplex used to pay off the loan. A would rent the new property back from the trust to make up any shortfall in loan payments.

    I believe that residual rental income (after tax/depreciation) needs to be distributed every year. Would it make more sense for that income to be paid to a individual (and taxed at income tax rates) then the remainder gifted or loaned back… or to setup a company owned by C which would be taxed at company tax rates, which would then gift/loan back a larger amount (due to lower taxes)?

    The curveball in all this is that with A closer to retirement age, the intention would be that directorship of the corporate trustee company would be passed on to C or C’s spouse at least 5 years before A is to retire (potentially avoiding control/sourcing issues) and allowing A to maximise their pension. Would A also need to be removed as a beneficiary ahead of time? If A is living in the trust owned additional property and paying discounted rent, would this affect anything?

    There is likely also an issue with who should be the appointer. If it’s C, would A still be treated as the controller? If it’s was A’s spouse is this arm’s length enough that A would be considered isolated from control of the trust?

    Profile photo of George PoullosGeorge Poullos
    Join Date: 2015
    Post Count: 10

    Your situation sounds like it it’s in need of specific legal/tax/estate planning advice.

    Perhaps get in touch with @terryw from this forum. He specialises in these areas.

    • This reply was modified 2 years ago by Profile photo of George Poullos George Poullos. Reason: addition

    George Poullos | Precision Funding
    Email Me | Phone Me

    Finance Strategist & JP

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

    Pity the testator didn’t get advice before doing their will as it could have saved you a fortune.

    Unless the will allows the transfer to a trustee will be a dutiable event and therefore attract duty. It will also be a CGT event – which may be exempt depending on the situation. There may be ways to avoid this, but probably not if the transferee will be a trustee.

    The trustee might as well borrow to buy the property from the estate or C

    Has to be careful as he might lose the pension over this.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide)

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