Family Trust Structure

Hi Guys,

My family has a family trust we used to run a Vending machine business. We are now not trading anymore and but instead want to use the trust to hold investment properties. I have a couple questions that i was hoping someone can please help me out on.

1.) When using a family trust to hold IP's, should the trustee be individuals or a company? Why I ask this is that when a property is held under a family trust, the name that goes on the title would be the trustees, therefore i assumed that it's always a better way to use companies because you can change directors of a company, but if you changed an individual , you would have to change the name on the held property titles?

2.) The current trustee for our family trust is a PTY LTD company, i'm unsure what other types of companies there could be, but was wondering if i would need to create another company if the current one isn't suitable.

3) Would there be any tax, legal issues putting IP's into a family trust that has a company as a company that used to trade?

First time Poster/Newbie, so please go easy :)

Kindest Regards,

John A
 
1) Yes and yes.
2) Any Pty Ltd would do but I would question using an old trading company since it may have old debts which can impact future trust activity. A fresh Pty Ltd may be best.
3) No tax issues since the trust prepares a separate tax return to the company itself. For legal issues see my point above.
 
It's easier to pass control when the trustee is a company. Messier to have an individual trustee and the trustee dies, goes insane, goes bankrupt, etc.

Generally not a good idea to have an opearting company, or a previously operating company, act as trustee. What happens if the company is sued for prior acts?

The other question is, what will the numbers look like? If the property is negatively geared, does a family trust make sense?
 
John

I agree with Aaron.

I should add you should read the deed carefully and make sure that
a) it is possible to own and mortgage a property
b) it suits the purpose
c) it is possible to change trustee and how
etc

Consider also the succession of the trust upon the death of the Appointor. Who will control it after your death and what are the implications.
 
Thanks everyone for your reply. You've all been so helpful.

As Alex mentioned.. If a property is negatively geared. Is it worth putting a property into a trust just for asset protection? In my situation, the property would either be in 4 names (my 2 brothers, sister and I) or in a trust. Since there are so many parties involved. Would it be worth losing out on any negatively geared benefits (around $6000 negative gearing per year)?

Regards,

John A
 
That is a decision you have to make. Weigh up the costs and consider what could possible go wrong - what are you wanting to protect against?
 
As Alex mentioned.. If a property is negatively geared. Is it worth putting a property into a trust just for asset protection?

In my situation, the property would either be in 4 names (my 2 brothers, sister and I) or in a trust.

Negative gearing is the least of your worries.

Since it's 4 siblings, you have to ask whether a family trust is appropriate at all. What's the plan for this property? Who will be the appointor(s)? Shareholders of the trustee company? Directors of the trustee company? What happens if one wants to sell his/her share? What happens when one sibling dies or divorces? You can't divide a share when it's owned by a family trust.

A unit trust, for example, would make it easier and cleaner to transfer ownership (but you lose asset protection at that level).

Why are you even doing this? 4 siblings owning a property sounds like a disaster waiting to happen.
 
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Negative gearing is the least of your worries.

Since it's 4 siblings, you have to ask whether a family trust is appropriate at all. What's the plan for this property? Who will be the appointor(s)? Shareholders of the trustee company? Directors of the trustee company? What happens if one wants to sell his/her share? What happens when one sibling dies or divorces? You can't divide a share when it's owned by a family trust.

A unit trust, for example, would make it easier and cleaner to transfer ownership (but you lose asset protection at that level).

Why are you even doing this? 4 siblings owning a property sounds like a disaster waiting to happen.


Since it's 4 siblings, you have to ask whether a family trust is appropriate at all. What's the plan for this property?
Plan is to invest with my brothers and sisters. Pay down the mortgage in to make it positively geared.
Buy another investment house in the future.



Who will be the appointor(s)?
I will be the appointer

Shareholders of the trustee company?
There will be 4 shareholders me, my 2 brothers and my sister.

By the way.. does it really matter who the shareholders are since the trusts will ultimately hold the asset?



Directors of the trustee company?
My brothers, my sister and I will be the directors

What happens if one wants to sell his/her share?
In the future if one of my brothers or sister will want their share. The property can be sold and his/her share could be distributed as a Capital Gain. The rest of the proceeds from the sale could then be reinvested. put into term deposit or pay down a loan that the trust has.

What happens when one sibling dies or divorces?
Some funds could be used to help out my brothers family. In a case of divorces.. well, i was hoping that the trust would be there to help protect the property from being sold off in an event of a claim being made by the ex-spouse.

You can't divide a share when it's owned by a family trust.
Yup thats true.. but if everyone is in agreement in regards to what percentage they own, then there shouldn't be an issue right?


A unit trust, for example, would make it easier and cleaner to transfer ownership (but you lose asset protection at that level).

Why are you even doing this? 4 siblings owning a property sounds like a disaster waiting to happen.

Just wondering why you think it's a disaster waiting to happen? I've heard of groups of friends getting together and investing in a property. Personal i think thats more riskier than investing with family :)


Thanks again for everyones input.


Regards,

John A
 
That is a decision you have to make. Weigh up the costs and consider what could possible go wrong - what are you wanting to protect against?

Hi Terry,

I was thinking protection against divorce settlements? litigations against my siblings and I, but then again , non of our jobs are high risk in terms of litigation.
I'm also thinking that if we were to keep investment properties in a trust, Properties could be passed down through generations without paying Stamp duty or CGT, since the directors can change.

Regards,

John A
 
Hi Terry,

I was thinking protection against divorce settlements? litigations against my siblings and I, but then again , non of our jobs are high risk in terms of litigation.
I'm also thinking that if we were to keep investment properties in a trust, Properties could be passed down through generations without paying Stamp duty or CGT, since the directors can change.

Regards,

John A

John A,

Trusts provide little protection in divorce. In bankruptcy, generally trust assets are not available to creditors.

It can be difficult to pass down a trust to multiple people because if the trustee position is controlled by a beneficiary then they can benefit themselves. e.g if you have 2 children then perhaps 2 trusts should be built up over time with roughly same asset values and control passed to each of them - but what happens if they have 2 children each. Someone will end up controlling the trust and it can get messy.
 
Jcode,

For what you have described above regarding buying with siblings, if you must, then you should consider unit trust rather than family trust.

Family trust works best between just your own immediate family, I.e. Mum and Dad investors.

You should research unit trust or contact Terryw.
 
Don't get too carried away with trying to protect something when you haven't even got something to protect...sure take precautions but don't let it dominate your thinking.
 
Hi Terry,

I was thinking protection against divorce settlements?

Yeah no, it won't protect against the family court.

I agree with Aaron, make sure you aren't focusing too much on the "asset protection" aspect in lieu of other considerations.
 
Since it's 4 siblings, you have to ask whether a family trust is appropriate at all. What's the plan for this property?
Plan is to invest with my brothers and sisters. Pay down the mortgage in to make it positively geared.
Buy another investment house in the future.

So all of you will agree on the type of property, where to buy, etc? You'll always agree on how to invest, for decades to come, regardless of your personal circumstances, preferences, tastes, etc?

Who will be the appointor(s)?
I will be the appointer

Do you know what this means? It gives you, and you alone, the power to change trustees and control the trust fully without needing to consult your siblings. Are you so sure that you can always keep everyone happy, and your siblings trust you to do this?

Even if you could, what happens if you get hit by a truck? The new appointor can control the trust regardless of what your siblings think.

Shareholders of the trustee company?
There will be 4 shareholders me, my 2 brothers and my sister.

By the way.. does it really matter who the shareholders are since the trusts will ultimately hold the asset?

Directors of the trustee company?
My brothers, my sister and I will be the directors

No, the Trustee company owns the asset. The Directors are the 'brain' of the company, but the shareholders can elect directors, while the Appointor can change the trustee. In this case, with 4 equal shareholders, 3 siblings can do whatever they want with the trust assets no matter what the 4th sibling thinks. And with you as sole appointor, you have even more power.

What happens if one wants to sell his/her share?
In the future if one of my brothers or sister will want their share. The property can be sold and his/her share could be distributed as a Capital Gain. The rest of the proceeds from the sale could then be reinvested. put into term deposit or pay down a loan that the trust has.

You realise if you sell the asset, all gains have to be distributed. You can't sell a property for 100k capital gain, say, and only distribute 25k to one sibling and retain 75k gain in the trust. The remaining 75k has to be distributed as well, and the beneficiary pays tax on it.

What happens when one sibling dies or divorces?
Some funds could be used to help out my brothers family. In a case of divorces.. well, i was hoping that the trust would be there to help protect the property from being sold off in an event of a claim being made by the ex-spouse.

And everyone in your family will agree? If a decent amount of your assets are in the trust, and a divorce forces the trust to sell....

You can't divide a share when it's owned by a family trust.
Yup thats true.. but if everyone is in agreement in regards to what percentage they own, then there shouldn't be an issue right?

It won't be an issue until it is. There's actually no legal way to enforce the 'percentage', since the trustee of the family trust owns the asset completely, and there is no divisible ownership of the trustee. As opposed to a unit trust.


Just wondering why you think it's a disaster waiting to happen? I've heard of groups of friends getting together and investing in a property. Personal i think thats more riskier than investing with family :)

No way I would invest with anyone else either. You say the negative gearing is about 6k. That tells me it's probably not a very expensive property anyway. Buy separately.

Actually, if you have to, investing with friends is better. If anything goes wrong, you can sue them and just risk losing them as friends. Are you willing to sue your family?

The only way this would work is if the 4 of you always agreed on everything, never have different financial needs, and die together. If that sounds reasonable to you.......

Share information. Encourage each other. Don't own together.
 
Thanks for all your replies. Seems like I need to do a lot more research and even look in other options e.g. Unit trusts.

I'm just a bit confused though.. It's always mentioned everywhere that family trusts is a good tool for "Asset Protection".. exactly what scenario would this be true?? Maybe a scenario where you get sued by a tenant because of an incident at your rental property because you were found to be negligent?

Regards,

John A
 
Thanks for all your replies. Seems like I need to do a lot more research and even look in other options e.g. Unit trusts.

I'm just a bit confused though.. It's always mentioned everywhere that family trusts is a good tool for "Asset Protection".. exactly what scenario would this be true?? Maybe a scenario where you get sued by a tenant because of an incident at your rental property because you were found to be negligent?

Regards,

John A

Asset protection in bankruptcy. An interest in a discretionary trust is generally not something that falls into the hands of creditors.

A tenant suing a trustee would mean all assets of that trust at risk.
 
Yeah no, it won't protect against the family court.

I agree with Aaron, make sure you aren't focusing too much on the "asset protection" aspect in lieu of other considerations.


Was just wondering about this for a while now. Why wouldn't a property be protected from a divorce case if the property was in a family trust? How would the courts determine what percentage of the properties are owned by the the beneficiary going through a divorce settlement?
 
sections of the Family Law act allow the courts to make orders against 3rd parties such as trustees. If the property of the trust is built up during the marrige by the efforts of one or both then it can be considered 'property of the marriage'. Itcan also be consideredd a financial resource of one or both of the parties.

Do a search for Kennon v spry for a recent case. Dr Spry was a barrister and trust 'expert'.
 
sections of the Family Law act allow the courts to make orders against 3rd parties such as trustees. If the property of the trust is built up during the marrige by the efforts of one or both then it can be considered 'property of the marriage'. Itcan also be consideredd a financial resource of one or both of the parties.

Do a search for Kennon v spry for a recent case. Dr Spry was a barrister and trust 'expert'.

Thanks again for your advice Terry. Much appreciated.
 
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