Forget about trusts!

[coastymike]

"Thousands of extra NSW land Tax"

That is why it is important to use the right trust. The trusts we are using at present ensure the trust obtains the threshold in NSW. Got a ruling from the OSR so no problems with that.

 

[Trogdor]

"Thousands of extra NSW land Tax"

That is why it is important to use the right trust. The trusts we are using at present ensure the trust obtains the threshold in NSW. Got a ruling from the OSR so no problems with that.

That's very useful information coastymike. In a nutshell what features of the trust allow for this? May the principles be potentially applicable in other states too?

Assume its more than just a company sitting under the trust?

 

[Amadio]

Stay honest, protect yourself and the chance of anything happening to your investment should be fine.

Key word here is "should".

As someone who went from having no property to PPOR + multiple IP's, living the dream, and back to having no property because an IP blew up, I would say that trusts definitely have their place.

If we had that IP in a trust we'd be living pretty darn well.

Each situation is different but young investors need to be aware that in this increasingly litigious environment the worst case scenario could be catastrophic and affect their investing for decades. The cost and bother of a trust is miniscule compared to the lost opportunity cost of an investment gone bad.

 

[Piston Broke]

Sure, trusts have their place, but I am merely trying to tell the beginners that buying your first couple of IP's should not be that difficult. AVERAGE People can get bogged down with all the supposed crap that is associated with investing. An investor who has one or three ip's, and plans to hold them, has other income, a stable home life, should not have some idea that they have made mistakes because they are "trustless'.

I agree anyone confident in their abilities will have no problem accumulating more in whateva entity the may choose.

How many times do you see beginners on here trying to get their heads around how to set up the right trust etc etc? Waste of time. Just go out, when you can, and START.

yeap, get out there and do it now!

Trusts are just a product that gives someone else income .

Actually this is the reason trusts actually exist, though you not have intended it this way.
But trusts exist in order to give your assets to others being the beneficiaries.
This is a point many don't understand, and the gurus don't tell you.

Half way through my investing career, i also got sucked into the trust hype. It made me scared, and I lost too many good opportunities from not being sure of what i was doing. I set up a trust after reading just about every book, and website, because i was sure that i was doing things wrong.

Yep they scare you into action, fear of losing it all.

The trust is still there. Never been touched. Sure, now towards the end of the time, i would like some of my Ip's in there. just in case i kick the bucket, and to make it easier for my kids, but I figure they will be happy with what ever they get, give or take a bit of CGT. I have made sure that they won't be relying on the handouts, by educating them about property and making them investors themselves, and pretty damn good ones at that.

You can do that easily with a testamentary trust (with a will), check it out.
When you "kick that bucket" it will be automatically setup, without paying fees in the meantime.
This is what a trust arrangement was intended for in the first place.

An other friend, also caught up in the trust hype, set it up for her 2nd ip. Didn't turn out real good-she had to sell at a loss and now has the loss stuck in there for a long long time. She could have used it against her income a lot more.
Of course there will be many stories of how many of you saved this and that, but you have to get there first, and then decide how much further you want to go, to make it realy worth while.

Real asset protection is expensive, and any accountant should be able to clearly explain the ramifications of having assets held in trust.
Reality is also that people blinded by fear & greed (and we've all been there!) don't listen nor reason to anything unless it pushes those 2 emotions.

 

[quoll]

What I'm getting out of your post Bianca is for the most part good advice (now that you have put some boundries on it) but you have wrapped it up in crap. Or put more nicely your advice is good but your delivery is not good. For those who want to buy IPs just get out there and buy some in your own names. Don't worry about structure and complex stuff just buy some houses. Then later if you move into the pointy end of IPs have a look at trusts.

Sure, trusts have their place, but I am merely trying to tell the beginners that buying your first couple of IP's should not be that difficult.

Maybe the extra info should have gone into the original post. Hindsight is SO good.

How many times do you see beginners on here trying to get their heads around how to set up the right trust etc etc? Waste of time. Just go out, when you can, and START.

Lots, but some people will find any excuse to do nothing. My parents are very much like that, analyse, thnk, compare, research, talk. We should all buy a NIKIE emblem on a necklace/earing/etc and always remember the JUST DO IT catch cry. Most of the time that simple act of acting achieves a better result than not doing anything.

Half way through my investing career, i also got sucked into the trust hype. It made me scared, and I lost too many good opportunities from not being sure of what i was doing. I set up a trust after reading just about every book, and website, because i was sure that i was doing things wrong. The trust is still there. Never been touched.

So this is what you based your advice on. The fact that you haven't used it, in which case is has been a waste of $$.

An other friend, also caught up in the trust hype, set it up for her 2nd ip. Didn't turn out real good-she had to sell at a loss and now has the loss stuck in there for a long long time. She could have used it against her income a lot more.

Hindsight, I'm sure they thought it was a good idea at the time.

Of course there will be many stories of how many of you saved this and that, but you have to get there first, and then decide how much further you want to go, to make it realy worth while.

Same as everything, some people win some loose some don't play the game. I sure there are plenty of people with trust that have never used them and feel the same way you do.

So my advise/advice stands, i am afraid. Average people, -work, save and buy, insure, and hold as long as you can.( with, of course all the general advice regarding property taken into the grey matter) You can realy make it as easy or as difficult as you want.

I thought the original advice was for everyone trusts are crap. Big broad sweeping statement, I don't recall any mention of average. (will have to go back and check).

Cheers
Graeme

 

[Perp]

So does anyone know of any first hand example where this has happened in Australia?

It's certainly not an everyday event, but neither is it a fairy tale. See, for example: $1.2M judgement against landlord for trip on carpet

The other activity which frequently gives rise to litigation is driving or owning a motor vehicle. It's very possible to attract a liability that your insurance won't cover, relatively innocently. For example, letting your licence or registration or insurance lapse (or just missing one payment), not getting your tyres replaced soon enough, lending your car to a friend/relative who drives drunk (I'm assuming nobody would be foolish enough to do that themselves), speeding... need I go on? Yes, most of the time you're OK, but I know of two friends who got themselves in big trouble with cars and lost everything.

One of them set up her insurance to pay by direct debit and forgot to change it when she changed banks. She had an accident about 2 days after the first payment bounced, before she'd even realised her oversight. She not only wrote off her own car, but had to pay for the repairs to the other (luxury) car out of her own money. I think it cost her about $30K, at a time when she was earning about $30K pa. (This was nearly 20 years ago.)

The other was around the same time. A male friend got his first promotion, was earning about $40K pa (probably equivalent to around $70-80K pa now), and bought a brand new SAAB convertible - and they were a lot more expensive 20 years ago. He got a cover note and left the dealership. He had an accident on the way home and wrote off the car, only to discover that the cover note organised by the car dealership had missed out some crucial information - like him being under 21 or something - and the insurer used this to deny coverage. It took him about 10 years to recover.

As someone who went from having no property to PPOR + multiple IP's, living the dream, and back to having no property because an IP blew up, I would say that trusts definitely have their place.

If we had that IP in a trust we'd be living pretty darn well.

Would you care to share how things went wrong for you, Amadio? I'm sorry to hear of your misfortune, but hope we can learn from it.

 

[65fbk]

It's certainly not an everyday event, but neither is it a fairy tale. See, for example: $1.2M judgement against landlord for trip on carpet.

Thanks for the link. I don't use trusts, but if the property manager alerts me to a safety issue, I spend the money and have the problem fixed. Maybe I'm an optimist, or in denial, but I think if you have insurance, use a property manager and keep the home in a good state of repair, you shouldn't have to live in fear of being sued.

 

[Terryw]

Here is a link to the full judgment
Muir v Hume [2003] QSC 191
http://archive.sclqld.org.au/qjudgment/2003/QSC03-191.pdf

It is only 10 pages long and worth the read. The tenant was awarded $1,248,402.54 (before costs too!) for a back injury that resulted from tripping on carpet. The landlord know about the hole in the carpet for many months and failed to repair it or make it safe.

I am not sure, but I don't think landlords insurance would have even covered something like this because there was a known problem and no steps were undertaken to repair it.

 

[skater]

Key word here is "should".

As someone who went from having no property to PPOR + multiple IP's, living the dream, and back to having no property because an IP blew up, I would say that trusts definitely have their place.

If we had that IP in a trust we'd be living pretty darn well.

Each situation is different but young investors need to be aware that in this increasingly litigious environment the worst case scenario could be catastrophic and affect their investing for decades. The cost and bother of a trust is miniscule compared to the lost opportunity cost of an investment gone bad.

Maybe, then, this should be a topic for another thread. I am sure there are plenty here who would be interested in hearing what transpired. It could prove educational.

 

[sash]

I personally I do not think trusts are bullet proof in terms of asset protection. Courts have set aside trust structures in their decision making.

There ways of protecting yourself outside of trusts they are:

1. Leave a mortgage in place on your properties even if it is $1. Why because when the ambulance chasers look up your assets and see that you have a mortgage there is no way of telling of how much you owe.

2. Research and and buy a quality indeminity policy.

3. Ensure that any maintenance is done in a timely fashion.

And finally, it is costly to litigate ....no lawyer will take on a case if they don't have a high probability of winning it. Even if they win....changes to laws have minimised the payouts. Chances of winning of millions of dollars is slim.

Personally, trusts for people holding residential portfolios is oversold and the hysteria created is an over kill.

As for tax paid....look at the compliance cost of managing a trust. It can be a 3-4K per annum. In my view it is not worth it.

 

[Perp]

I personally I do not think trusts are bullet proof in terms of asset protection. Courts have set aside trust structures in their decision making.

Could you provide an example of where a discretionary trust has failed to protect its assets when a beneficiary has been sued, excluding family law cases?

I think if you have insurance, use a property manager and keep the home in a good state of repair, you shouldn't have to live in fear of being sued.

1) I agree that you shouldn't "live in fear"; but nor should you naively assume that your insurance will protect you against all eventualities. I think that it's a completely reasonable position to feel comfortable taking on the small risk that you'll lose everything to an uninsurable event, but you have to be prepared to "take it on the chin" if you end up on the wrong side of the gamble.

2) One benefit that's not frequently mentioned is that assets in Trust are protected from your personal, non-litigation-related financial disasters, such as job loss, or you becoming a victim of fraud, etc. If the Trust is self-sufficient, then if you go broke (personally), then you at least keep the Trust assets.

3) I also think that maintenance costs of a discretionary trust are frequently overestimated by the "hold everything in your own names" advocates.

As for tax paid....look at the compliance cost of managing a trust. It can be a 3-4K per annum. In my view it is not worth it.

My DT cost about $2K to set up (with a corporate trustee), and costs me about $800 pa to maintain.

4) It's not just about asset protection; it's also about tax effectiveness and succession. geoffw's situation is far from "unusual", IMHO. Presumably everybody is going to make a profit from their property eventually, or else it's not an investment.

I'm not saying that everybody should have a Trust, I'm just saying that people should make an informed decision, and be prepared to live with the foreseeable consequences of their choice.

 

[GGABec]

I have been a long-time lurker but never posted anything as I have let Alysha & Pat be the GGA "faces" here but I feel strongly enough about this thread to have to put in my two bobs worth!
Some of you have already pointed this out but there is no ONE answer for property, or business ownership and lumping everyone together, even the average, is inappropriate to say the least!!
For a property investor with a business trusts are definitely going to be the way to go 99% of the time - one for the business and one for the properties with the ability to distribute income across the whole family group.
And please make sure you get advice from your accountant before setting up a business in a company - it would be very sad to lose the small business CGT concessions because you didn't ask for advice!!!

 

[rugrat]

I think the problem comes in because people don't do enough research and, quite frankly, for the most part, really don't understand what a trust is, let along all the different types and exactly how much protection they may provide and in what circumstances. I am not going to get into all that - I studdied trusts as a yearlong subject at uni, and still only have a broad grasp on them.

If you wish to use a trust, or are curious as to whether you should, do your own research and educate yourself about them, and then go and see a lawyer who specialised in trusts and see what they have to say about your particular situation. Because the truth is there is no one size fits all.

And for god's sake, don't listen to anyone who is not extremely well versed on the subject of trusts trying to tell you either "you should DEFINANTLY / DEFINANTLY NOT use (any kind of) a trust." Just because they have a strong opinion and appear to know what they are talking about, doesn't mean they do.

My father (a former accountant, among other things) has on many occaision "suggested" I should use a trust (or do other things which I am not). If I didn't have my education in law and commerce, then I may very well have thought he was right and done the thing he suggests - he has very persuasive arguements. But in my circumstances, with my goals and strategies, that would not have been the best way for me to go (My financial planner and lawyer have confirmed this for me).

So moral of the story, always take anyone's advice (even mine) with a grain of salt and make sure you doo your own Due Dilligence and understand it completely before proceeding with anything.

 

[Ausprop]

I think my last trust cost about $150 and I do my own books. Unless you have a reason not to use a trust then you are just being reckless or perhaps lazy.

which book was it that talked about the happy guy with lots of assets, goes on the golf day, tees off and the ball hits someone in the head and vegetates them?

 

[Perp]

which book was it that talked about the happy guy with lots of assets, goes on the golf day, tees off and the ball hits someone in the head and vegetates them?

Mark Shanahan, lost $2.6M for a stray golf ball that hit somebody in the head on Magnetic Island. He had a business and loads of assets, I believe, and lost the lot.

I want to make it clear that I'm not suggesting this is remotely an everyday occurrence. It's still a long shot. (Excuse the unintended pun.)

Lots of people don't insure their contents, either. If they want to take that risk, good on them - just don't go whining on TV that you lost everything and weren't insured, and start a charitable fund. (Does that **** anybody else off, or am I just heartless? )

As was reinforced for me last year (when I had a $250K home and contents claim as a result of our PPOR flooding), good insurance (and structures) are a waste of money when you don't need it, and invaluable when you do.

 

[wobbycarly]

Lots of people don't insure their contents, either. If they want to take that risk, good on them - just don't go whining on TV that you lost everything and weren't insured, and start a charitable fund. (Does that **** anybody else off, or am I just heartless? )

You're not the only one! "We just moved in to our brand new $500k dream home that we spent 2 years building, but we couldn't afford $500 H&C insurance, so when it burnt down, we lost everything!" Boo Hoo!

 

[Terryw]

Ollier v Magnetic Island Country Club Incorporated & Shanahan [2003]. QSC 263
http://archive.sclqld.org.au/qjudgment/2003/QSC03-263.pdf

Sad case

 

[Shaneelastic]

I personally I do not think trusts are bullet proof in terms of asset protection. Courts have set aside trust structures in their decision making.

There ways of protecting yourself outside of trusts they are:

1. Leave a mortgage in place on your properties even if it is $1. Why because when the ambulance chasers look up your assets and see that you have a mortgage there is no way of telling of how much you owe.

2. Research and and buy a quality indeminity policy.

3. Ensure that any maintenance is done in a timely fashion.

And finally, it is costly to litigate ....no lawyer will take on a case if they don't have a high probability of winning it. Even if they win....changes to laws have minimised the payouts. Chances of winning of millions of dollars is slim.

Personally, trusts for people holding residential portfolios is oversold and the hysteria created is an over kill.

As for tax paid....look at the compliance cost of managing a trust. It can be a 3-4K per annum. In my view it is not worth it.

Discretionary Trusts can protect assets, especially when you set up the directors/trustee/shareholders correctly in respect to your situation.

These arrangements have protected professionals very well over the years. Just think of all those failed business people who go into liquidation on ACA/TT yet they are still millionaires.

Thumbs up to you about the mortgage idea. This is an area i have researched. I actually have looked into the defacto relationship breakdown where the other party is not on title, just simply living with the partner. You could potentially pull the money say out of an offset account and the at dissapear on at the track, This would obvsiouly work with one ppor only.

 

[zargor1]

If you wish to use a trust, or are curious as to whether you should, do your own research and educate yourself about them, and then go and see a lawyer who specialised in trusts and see what they have to say about your particular situation. Because the truth is there is no one size fits all.

And no one knows what will happen in 2010 with trusts (especially from the taxation side of things).

Also, as a tip, when you're in bed one night and looking for something to help you sleep, why not read the trust deed. Now I acknowledge that ranks just below getting Telstra to waive incorrect charges, in terms of enjoyment but it might actually help you understand how a trust works and what has to happen to "solidify" various actions taken.

If that doesn't send you to sleep, then follow that up with reviewing your bank loan documents to see just how much they have you in a squirrel grip (kinda inclined to give you nightmares, that one).

Zargor

 

[Shaneelastic]

Are the "9-5" corporate lawyers and doc that are employees of hospitals/med centres covered for liability by their employers? (other than illegal stuff of course)....

Cheers,

The Y-man

Yes, but only to an extent.

If its something like a financial planner/accountant serioulsy breaching the laws, the PI wont cover them, thus they will go after them individually.