Anyone NOT using a trust?

[XBenX]

Re: Re: Anyone NOT using a trust?

Originally posted by brains
Im not using a trust because when i bought my IPs i didnt know about trusts (Lotanas point # 4).

Recently i had a chat with my accountant re trusts and he said im not in a high litigation risk occupation (like doctors or lawyers) and the cost of moving existing assets into a trust (stamp duty) makes it prohibitive. So i dont use a trust , not saying i wont in the future, but i havnt previously for the above reasons.

In a situation such as Brain's where you can control your income (since its derived from his business) the tax minimisation benefits of the trust structure are diminished (since you just structure the income you control in the most benefical way)

Here is my example, Jeff and Julie own their own company. Jeff and Julie are paid a salary by the company (which is flexible) and are planning to purchase an IP.

When discussing structures they decide that asset protection isnt an issue for them and decide to only look at the benefits of the trust structure from a tax POV.

They decide to buy the property w/ a 50/50 share and all rental income is split according to this mix. My point is that at present, since they are controlling their income setting up a trust for tax purposes is not a viable option as they will have extra compliance costs and land tax issues.

But what happens in the future ? The company is wound down and sold off... (or perhaps it keeps running, its not really important) their income is now likely to consist of rental income, maybe some dividends, some interest on deposits (lets ignore other possible sources of income such as a pension or a part time job) .... since the income is split according the the 50/50 ownership then tax would be effectively minimised... (this is assuming all investment are 50/50 split....

The issues I can see are - loss of the ability for deductions related to the trust, director fees, paying for admin, splitting income over the entire family unit (if trust deed allows),etc - as well as asset protection (already mentioned)

Then what about estate planning ? I think this is where the main problems will lie ... Ive got a few idea but estate planning isnt exactly something that Ive thought about much being in my 20's and all

But essentially these IP's will be +ve by then and having them in a dis trust (at that stage) has to be of benefit ..... hrmmm opwn for comment, corrections and additions

 

[NickM]

Ben
you have raised some very good points.

Immediate tax benefits are negligible. Future tax benefits could be applicable if Jeff & Julie have children and they can take some income. Also dont rule out income to brothers, sisters, nephews, nieces etc.

If property is sold - CGT payable can be diluted through effective distributions

Could talk for ages on the permutations for estate planning issues

However, if both parents die and property left to children - could be open slather for a "not so desirable spouse of a child"

If it remains in the trust - it is protected as the children do not own the property.

i always take the view that a Trust is a long term structure and not to provide an immediate tax benefit. Any such benefit is purely incidental.

nickM