Do you invest through a trust?

[Phiber]

Hi guys,

I wanted to probe the users of trusts out there as to what is the main reason they use trusts for their investments?

Is it for asset protection against potential creditors?
Is it for minimising tax payable?
Estate planning?

Something else?

I am curious as I myself am looking at this aspect however the level of complexity makes me question how worth it is compared to owning in my own name. We are talking about a 1mil commercial property.

Thanks guys

 

[D.T.]

Is complexity relative to one's own knowledge?

For a 1mil commercial property you'd be mad to own it in your name. Open to lots of litigation and taxation.

 

[nhg]

Hey,

Terry would be best to ask, though as above for a $1M commercial IP I would imagine a trust is a good strategy.

From reading previous posts, it comes down to what you are buying, the stage of investing you are in and your circumstances.

A high-risk business owner with several IP's would see more benefit in a trust than say, a PAYG worker with 2 lower-end residential properties, (In NSW, they would loose the land-tax threshold, different in every state, and pay ongoing trust fees).

Using structures didn't make any sense to me previously, however it is starting to as my circumstances have changed, not due to increase in IP's, but due to starting a business.

In relation to asset protection from divorce, I'm told it doesn't help one iota.

Hope it helps (until the gurus make it clearer )

 

[geoffw]

I'd recommend reading Date Gatherum Goss's Trust Magic.

The main disadvantage of a Discretionary Trust is that it doesn't allow negative gearing against your private income. But with a commercial property such as the one you mention, I'd be guessing that it will be positive.

A big advantage of trusts, apart from the asset protection, is that it allows distribution of income flexibly. If you have a life partner that can be an advantage, especially with tax, depending on the circumstances. Remember that circumstances can, and do, change.

 

[devank]

Using structures didn't make any sense to me previously, however it is starting to as my circumstances have changed, not due to increase in IP's, but due to starting a business.

That sounds like your IPs are under the trust. What structure is your business under? Who is the director/owner of your business? Who is the director of your (IP) trust?

 

[Terry_w]

there are also many strategies utilising trusts which don't involve the trust owning the property. You can have a bit of cake and eat it too.

 

[Peter_Tersteeg]

I do invest through a discressionary trust, for both asset protection and tax 'optimisation'.

I'm also self employed and I've structured my business and investments in a way that a PAYG wage earner can't. It works very well for me, but I wouldn't suggest that investing through a trust is going to be the optimal solution for everyone.

Do what Geoff has suggested, look at DaleGG's book, understand how trusts work and if you need to get some specific advice.

 

[Deltaberry]

Asset protection, liability protection, tax efficiency.

That said, you may want to own your biggest residential in your own name to claim PPOR exemption especially under the 6 year rule.

 

[Mindmaster]

I'd recommend reading Date Gatherum Goss's Trust Magic..

Thanks Geoff, Just ordered the digital version online and received a complimentary Weath Sabotage CD and a steak knive set.

Emailing my accountant about trusts so this will allow a more intelligent conversation, save time and improve efficiency and minimize my tax bill

 

[nhg]

That sounds like your IPs are under the trust. What structure is your business under? Who is the director/owner of your business? Who is the director of your (IP) trust?

It's still too early on to comment. ATM I own 3 IP's (all dual occ) under my own name.

I opened a Pty Ltd and Trust via TerryW (kudos to him) to purchase more property however due to a change in strategy I am using them to run the granny-flat/renovation business.

My concern with property under my own name is, I recently bought into and half-own Painting/Roof Painting/Gyprocking and Renovation businesses. Whilst it made sense before for land-tax reasons, however now my risk profile has increased, whilst my asset protection has not.

I just hadn't thought I would head in this direction at the start. As I accumulate more property i will purchase them under a discretionary trust. Any income made from the businesses I will pay either to myself or into another PTY LTD depending on what I plan to do with the income.

I'll have to update this once I figure out the best strategy on how to use these. Terry has been super helpful, yet i'm still figuring a lot of my end out.

 

[devank]

I opened a Pty Ltd and Trust via TerryW (kudos to him) to purchase more property however due to a change in strategy I am using them to run the granny-flat/renovation business.

Thanks for sharing.

Who is the director of this setup?

 

[Terry_w]

Asset protection, liability protection, tax efficiency.

That said, you may want to own your biggest residential in your own name to claim PPOR exemption especially under the 6 year rule.

and, you can still own in your own name and utilise a trust for asset protection and get the main resident CGT exemption.

 

[nhg]

Thanks for sharing.

Who is the director of this setup?

Myself. I wanted to place a family or friend and simply make myself the appointer, however I didn't feel it right to put someone else in a liable position, my parents are very risk averse and my sister has her own substantial portfolio.

My sister (whom I trust immensely) is the appointer.

 

[devank]

however I didn't feel it right to put someone else in a liable position

Exactly.
Our small business (weekend job) is under trust which is owned by a $2 company. My wife is the director. We both earn the same. We both own all our IPs 50:50. So what ever lawsuit hits her will hit out 50% of the assets.
Even if we start buying future IPs under a trust then we both need to be guarantor to the mortgage which automatically 'links' us to the future assets.

 

[Terry_w]

Exactly.
Our small business (weekend job) is under trust which is owned by a $2 company. My wife is the director. We both earn the same. We both own all our IPs 50:50. So what ever lawsuit hits her will hit out 50% of the assets.
Even if we start buying future IPs under a trust then we both need to be guarantor to the mortgage which automatically 'links' us to the future assets.

The company would be acting as trustee and not own the trust.

You would not both need to guarantee the trust loans. You should set things up so that only one needs to provide the guarantee. So if the project fails only 1 of you is exposed.