Family trust overkill?

[mikej]

I want to start investing and want to make sure I have the best structure. I've heard that a family trust is really only worth the hassle if you are expecting a >$10k ROI p.a

Basically my situation is: wife & 2 kids under 18. Wife payg $30kish & me payg + s/e sole trader $50-70k (day job + small home based online business normally running at a loss)

Currently have ppor in joint names (around 80% lvr) & about $11k share holding in my individual name (owned outright).

My plan is:

- to start a share portfolio using margin lending with my existing shares as security.
- invest in Steve McKnight's US managed fund using home loan redraw funds split separately.
- setup an LLC and buy & hold in several US markets as well as some flips with a team on the ground.
- potentially buy and hold Australian property (funds/equity allowing)

(realistically, initial investments would be $<50k each investment except for Aussie property purchases)

The specific loan structures etc for some of these I will address separately.


My question is, while a family trust may be expensive and somewhat overkill in the early stages, I want to ensure I can start out right. I want to be able to 'go big' without tax & implications etc later.

I understand also that for privacy & liability etc that many investors use a trust or pty ltd to own a US LLC.

The main factors that concern me with any investment structure other than our joint names is the cost, complications and borrowing aspects. Basically the trust will own nothing initially and I would need to lend to the trust. Also I would imagine getting any finance approved will be more painful than in personal names.

Any general advice would be appreciated

Mike

 

[D.T.]

Landtax is the main reason I'd use one. The states that I invest in both have ~300k threshold for people and for trusts, therefore can load up ~300k worth in my name, then same in trust 1, trust 2, trust 3 etc and pay zero.

It really depends on what you're doing and how far you plan on going. It's easier and cheaper to do things beforehand than to try changing them afterwards.

 

[Paul@PFI]

Landtax is the main reason I'd use one. The states that I invest in both have ~300k threshold for people and for trusts, therefore can load up ~300k worth in my name, then same in trust 1, trust 2, trust 3 etc and pay zero.

It really depends on what you're doing and how far you plan on going. It's easier and cheaper to do things beforehand than to try changing them afterwards.

Ummm... Last I checked land tax doesn't apply to managed investments. I understand your view is confined to property ownership.

Trusts that hold property need to consider the state of property and a load of factors. The type of Trust 1, Trust 2 etc might work in QLD / WA but be useless in many other states.

Also a Disc Trust may be a poor choice to refinance or to change beneficial owners and not pay duty. And then a terrible structure if unrelated persons are involved or a fixed interest is needed for a bank loan and deductible interest, neg gearing and much more.

Its always comes down to specific needs and personal advice.

 

[Paul@PFI]

I want to start investing and want to make sure I have the best structure. I've heard that a family trust is really only worth the hassle if you are expecting a >$10k ROI p.a

Basically my situation is: wife & 2 kids under 18. Wife payg $30kish & me payg + s/e sole trader $50-70k (day job + small home based online business normally running at a loss)

Currently have ppor in joint names (around 80% lvr) & about $11k share holding in my individual name (owned outright).

My plan is:

- to start a share portfolio using margin lending with my existing shares as security.
- invest in Steve McKnight's US managed fund using home loan redraw funds split separately.
- setup an LLC and buy & hold in several US markets as well as some flips with a team on the ground.
- potentially buy and hold Australian property (funds/equity allowing)

(realistically, initial investments would be $<50k each investment except for Aussie property purchases)

The specific loan structures etc for some of these I will address separately.


My question is, while a family trust may be expensive and somewhat overkill in the early stages, I want to ensure I can start out right. I want to be able to 'go big' without tax & implications etc later.

I understand also that for privacy & liability etc that many investors use a trust or pty ltd to own a US LLC.

The main factors that concern me with any investment structure other than our joint names is the cost, complications and borrowing aspects. Basically the trust will own nothing initially and I would need to lend to the trust. Also I would imagine getting any finance approved will be more painful than in personal names.

Any general advice would be appreciated

Mike

The IRS HATE Australian trusts. US tax law doesn't identify it as a tax entity. You are asking for problems.

 

[D.T.]

Ummm... Last I checked land tax doesn't apply to managed investments. I understand your view is confined to property ownership.

.

Ummm I said "I'd use one for ...". I understand your attention to detail is low.

 

[Terry_w]

I want to start investing and want to make sure I have the best structure.

This poll is not really meaningful.

There are multiple ways to structure a joint purchase for example. JT or TIC. If TIC equal or unequal shares etc etc.

There are 4 broad types of discretionary trusts too, multiple ways to structure a trust set up etc.

Single ownership is not covered nor is a unit trust.

And what other people use won't really help you. I would say about 5% of my clients use a trust to directly hold property but that doesnt necessarily mean you should follow the majority.

And as Paul suggests it will largely depend on the state you are buying in and other land holdings in that state - if any. eg. If you purchased an $800,000 house in Sydney with land content of $400,000 it may cost you from $0 to $6,400 every year in land tax depending how it is owned.

Based on your post a trust may not be a good idea for you and the family at this point in time.

 

[mikej]

I should mention that of the investments I'm looking at, Aussie property is currently my last priority. But if I was to buy the states would be Qld & SA.

If I'm not buying Aussie property, would a trust be beneficial still?

 

[Terry_w]

I should mention that of the investments I'm looking at, Aussie property is currently my last priority. But if I was to buy the states would be Qld & SA.

If I'm not buying Aussie property, would a trust be beneficial still?

Yes it could be beneficial to set up a discretionary trust to own shares and managed funds etc. Many issues need to consider though.

 

[mikej]

Yes it could be beneficial to set up a discretionary trust to own shares and managed funds etc. Many issues need to consider though.

I appreciate there's obviously many variables to this type of situation but with the amounts I'm looking to invest over say 10-15 years, would a disc. trust be worthwhile for shares & managed funds?

My concern is transferring from personal to trust later would have issues.

 

[Terry_w]

I appreciate there's obviously many variables to this type of situation but with the amounts I'm looking to invest over say 10-15 years, would a disc. trust be worthwhile for shares & managed funds?

My concern is transferring from personal to trust later would have issues.

Yes thinking long term it could be worthwhile, but i have seen many a person set up trusts and then do nothing with them.

Transferring assets later results in duty, CGT and asset protection issues

 

[mikej]

At the same time, the option could be to purchase assets later in the trust and not transfer existing assets.

 

[Terry_w]

A person will use multiple structures over a lifetime so don't think you need just 1 'structure' and that this will be it for the rest of the life. Need to tie in various strategies as well.

 

[Paul@PFI]

A good example is a Unit trust and superannuation involvement. A SMSF cant EVER buy resi property from a related party DT. And a SMSF cant take an interest in a related party owned property but it can buy an interest in some unit trusts. A SMSF / UT strategy can allow the SMSF to put up a large deposit and be +ve geared at a low rate of tax and the members neg gear the balance.

And one of the problems with people considering trusts is they seem to apply their present position to the issue. However when clients approach me after owned IPs for a long time they then wish they had originally considered a trust for either estate planning, asset protection, assets / income or other issues.

Personal ownership of IPs can be overrated. Its a fixed and forever form of ownership. Costly to fix and change later.