hybrid trust
- Thread starter h8dk97
- Start date
Hi
Yes, you can . . . You borrow money from the bank to buy the units in the hybrid trust. Because those units give you an entitlement to income from the trust, you can claim the interest paid on that loan against your salary and other income.
The trust has sold units and received cash from you. It uses that cash to buy a property.
The trust earns rental income and will offset this by rates, insurance and property management fees etc, plus depreciation. So, the trust is likely to have a small profit. This profit is distributed to you, or one of the other beneficiaries which reduces the loss created by the interest that you paid.
To arrange this properly, you probably need to have the bank take the new property as security for the loan and a decent broker will be of great help!
Does this make sense?
Dale
Yes, you can . . . You borrow money from the bank to buy the units in the hybrid trust. Because those units give you an entitlement to income from the trust, you can claim the interest paid on that loan against your salary and other income.
The trust has sold units and received cash from you. It uses that cash to buy a property.
The trust earns rental income and will offset this by rates, insurance and property management fees etc, plus depreciation. So, the trust is likely to have a small profit. This profit is distributed to you, or one of the other beneficiaries which reduces the loss created by the interest that you paid.
To arrange this properly, you probably need to have the bank take the new property as security for the loan and a decent broker will be of great help!
Does this make sense?
Dale
Hi Dale
So u could still do this even if u intend the property to be your PPOR. However if it's in the trusts name it really isn't your PPOR and then I assume will attract CGT if sold just like an IP. Is that right ?
or is there a way to avoid CGT ?
I think in an earlier thread u mentioned something about if it's a long term lease u could avoid CGT. Can u explain abit more about that ?
Also does the rent u r paying the trust have to be at market value ?
I f so determined by who ?
Obviously the less rent u r paying your trust the less income will need to be distributed to the beneficiaries therefore less tax.
Does my thinking make sense ?
Thanks your thoughts r always appreciated
Regards
Absolutely! Sounds good, the only question is would bank lend me money to buy units from trust before I have bought the property, I guess it would work in the following sequence:
1. Set up a hybrid trust
2. Talk to bank about my plans
3. Find property
4. Pay deposit from my LOC
5. Get the loan
6. Buy units from the trust
7. Trust buys the property
Would this be similar to how it works?
Thank you Dale.
Question Short version: Are Hybrid trusts safe for the protection of assests?
Long version:
Have been reading what I can on trusts and from what I can tell, a Hybrid trust uses parts of the Unit Trust setup.
I also read that beneficiaries are legally responsible for debts incurred by the unit trust.
I am mainly concerned with asset protection first and foremost and then taking advantage of tax benefits next.
From what I can see of a Hybrid trust, is that it allows you to obtain negative gearing benefits now.
If I was to use a discretionary trust, wouldn't I be able to caryy losses from say the first 3 years or so, across to income producing years and offset them against that income.
So in effect Hybrid allows you to get the benefits of the losses now and Discretionary allows them later, so that over time it works out fairly even (not allowing for the time value of money)
Hope this makes sense.
Long version:
Have been reading what I can on trusts and from what I can tell, a Hybrid trust uses parts of the Unit Trust setup.
I also read that beneficiaries are legally responsible for debts incurred by the unit trust.
I am mainly concerned with asset protection first and foremost and then taking advantage of tax benefits next.
From what I can see of a Hybrid trust, is that it allows you to obtain negative gearing benefits now.
If I was to use a discretionary trust, wouldn't I be able to caryy losses from say the first 3 years or so, across to income producing years and offset them against that income.
So in effect Hybrid allows you to get the benefits of the losses now and Discretionary allows them later, so that over time it works out fairly even (not allowing for the time value of money)
Hope this makes sense.
HI
>Have been reading what I can on trusts and from what I can >tell, I also read that beneficiaries are legally responsible for >debts incurred by the unit trust.
No, this is not entirely true. As a unitholder, you are only accountable for the units that you own. You would still retain control of the discretion to distribute inocme outside of the "new" unitholder - the creditor.
>I am mainly concerned with asset protection first and foremost >and then taking advantage of tax benefits next.
My rule of thumb then would be to use a traditional discretionary trust and bypass the hybrid trust.
>From what I can see of a Hybrid trust, is that it allows you to >obtain negative gearing benefits now.
>If I was to use a discretionary trust, wouldn't I be able to caryy >losses from say the first 3 years or so, across to income >producing years and offset them against that income.
Yes, you can carry forward losses for as long as it takes to aborb them aginst profits.
>So in effect Hybrid allows you to get the benefits of the losses >now and Discretionary allows them later, so that over time it >works out fairly even (not allowing for the time value of money)
In a simplified sense, yes, this is right!
Dale
>Have been reading what I can on trusts and from what I can >tell, I also read that beneficiaries are legally responsible for >debts incurred by the unit trust.
No, this is not entirely true. As a unitholder, you are only accountable for the units that you own. You would still retain control of the discretion to distribute inocme outside of the "new" unitholder - the creditor.
>I am mainly concerned with asset protection first and foremost >and then taking advantage of tax benefits next.
My rule of thumb then would be to use a traditional discretionary trust and bypass the hybrid trust.
>From what I can see of a Hybrid trust, is that it allows you to >obtain negative gearing benefits now.
>If I was to use a discretionary trust, wouldn't I be able to caryy >losses from say the first 3 years or so, across to income >producing years and offset them against that income.
Yes, you can carry forward losses for as long as it takes to aborb them aginst profits.
>So in effect Hybrid allows you to get the benefits of the losses >now and Discretionary allows them later, so that over time it >works out fairly even (not allowing for the time value of money)
In a simplified sense, yes, this is right!
Dale
Thank you Dale.
I just want to clarify one thing - why is it better to go through a broker than talking directly to the bank?
When I look for certain services I apply simple logic - does the service provider have an incentive for me to benefit from their service? If yes I will more likely to use their services if no I don't have an incentive to go to them. So far my experience with mortgage brokers was not a positive one. I don't really blame anyone, I'm just saying that at the moment unfortunately mortgage brokers are not rewarded for finding the deal that is SUITABLE for me, they are rewarded for finding ANY deal. That is why I prefer to do the research myself. I usually look at http://www.yourmortgage.com.au to compare different loans.
Would be interested to hear other people's view on this.
I just want to clarify one thing - why is it better to go through a broker than talking directly to the bank?
When I look for certain services I apply simple logic - does the service provider have an incentive for me to benefit from their service? If yes I will more likely to use their services if no I don't have an incentive to go to them. So far my experience with mortgage brokers was not a positive one. I don't really blame anyone, I'm just saying that at the moment unfortunately mortgage brokers are not rewarded for finding the deal that is SUITABLE for me, they are rewarded for finding ANY deal. That is why I prefer to do the research myself. I usually look at http://www.yourmortgage.com.au to compare different loans.
Would be interested to hear other people's view on this.
