Hybrid Trusts

W

WebBoard

Guest
From: Dionysus888 .


Can anybody give an example of how a Hybrid Trust works and advantages/disadvantages over a standard discretionary trust?

Dionysus888

You're not drunk if you can lie on the floor without holding on. ... Dean Martin
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 2
From: Steven Oliver


Also, Chris Batten's website at www.chrisbatten.com.au has some info, including a copy of the trust deeds for a hybrid trust. His manual "Investment Structures 2002" goes into more detail and he runs seminars on it too.
 
Last edited by a moderator:
Reply: 3
From: Dale Gatherum-Goss


Hi

A hybrid trust is a cross between a unit trust and a discretionary trust. The main differences are that you own a number of units in the trust which entitles you to income; as well as having the flexibility to distribute income to other family members.

The advantages are that this structure allows an individual to use a trust and still negatively gear the investment in their own name.

The disadvantage is that asset protection is not quite as strong in this structure as it is for a traditional family trust.

I hope that this helps a little

Dale
 
Last edited by a moderator:
Reply: 3.1
From: Andrew Smith


Hi Dale,

Would that mean for a property investor who wanted to buy mainly negatively geared property, a hybrid trust is better than no trust at all?

Andrew
 
Last edited by a moderator:
Reply: 3.1.1
From: Dale Gatherum-Goss


HI Andrew!

Yes, I think it is, however, it is still something that I am coming to terms with and getting a complete picture of.

Dale
 
Last edited by a moderator:
Reply: 3.1.1.1
From: Mark Laszczuk


Dale,
When you say that hybrids don't have quite as much protection, how far does that 'quite' go? Is there a reasonable amount of protection, as in, the difference is miniscule between the two, or is there a small amount of protection, as in, virtually no protection as compared to a family trust?

Mark
'no hat, some cattle'
 
Last edited by a moderator:
Reply: 3.1.1.1.1
From: Dale Gatherum-Goss


Hiya Mark

Asset protection is still good in a hybrid trust for the trusts assets assets such as IP's and shares.

However, the individual who owns the units in the hybrid trust has that asset (the units) at risk should someone sue them.

I'm still trying to find out more information to satisfy my need to know more . . . so far, so good though.

The bottom line is that the choice to use this structure instead of a traditional trust structure will come down to your desire to access the negative gearing advantages and willingness to accept the risks involved.

Have fun

Dale

Dale
 
Last edited by a moderator:
Reply: 3.1.1.1.1.1
From: Mark Laszczuk


In relation to owning units, I'm assuming this isn't possible, but could they be held by a company, and should the company be sued, can it then onsell the units to another company so as not to put the units in danger?

Mark
'no hat, some cattle'
 
Last edited by a moderator:
Reply: 3.1.1.1.1.2
From: Kim Heaver


On 8/18/02 5:51:00 PM, Dale Gatherum-Goss wrote:
>However, the individual who
>owns the units in the hybrid
>trust has that asset (the
>units) at risk should someone
>sue them.

My understanding is the units held are income only units with no right to capital, wouldn't this make them as safe as a normal trust.
I haven't have any legal advise on this.
Has anyone had legal advise on this point?

Regards,
Kim
 
Last edited by a moderator:
Reply: 3.1.1.1.1.2.1
From: Dale Gatherum-Goss


Hi Kim

I agree with your thoughts, but, for me the door has been left ajar enough to create doubt . . . as I learn more about Hybrid Trusts I will either love them even more than I love the traditional family trust, or, lose interest a little.

Using this structure will probably come down to your comfort level with the perceived risk - real or otherwise.

have fun

Dale
 
Last edited by a moderator:
Reply: 3.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Mark

In theory, yes, but in reality the reason why a Hybrid Trust is so attractive to so many people is because the high income earner can use the trust to hold the investment, and, still gain the tax advantages of negative gearing because it is the high income earner who owns the units.

To drop a company in place defeats this purpose.

I like the way you think though!!

Dale
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 3.1.1.1.1.2.2
From: Gordon Austin


Hi Kim,

I did have a brief discussion about Hybrid trusts with a lawyer some time back and from my understanding the trust units (which are free from borrowings) would be exposed to creditor risk but that is all. Importantly the increase in equity of the property over time is safe from creditor risk which is not the case with owing a property in your own name. Bear in mind that many property investors will probably use an interest only loan to purchase the units in the trust in which case they are essentially free from creditor risk (ie bank security). And if you should ever want to pay out the loan on the units then the trust can redeem the units thereby giving you full asset protection.

Gordo
 
Last edited by a moderator:
Reply: 3.1.1.1.1.2.2.1
From: Mark Laszczuk


Gordon,
Are you saying that if someone (other than the creditors) chose to sue you, they wouldn't be able to touch the assets in the trust, even though you own units in the trust? Is this correct?

Mark
'no hat, some cattle'
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 3.1.1.1.1.2.2.1.1
From: Gordon Austin


Hi Mark,

According to Kevin Munro's "Trusts and Tax Planning" section on Hybrid Trusts he states that "the asset is protected from unsecured creditors". I am still very much a novice when it comes to trusts so you may want to consider contacting Kevin and discussing this with him as a first step in doing your own research. From what I can gather he has a lot of expertise with Hybrid Trusts and has been setting them up for clients over a long period of time.

At the end of the day you need to have confidence in the lawyer/advisor you are dealing with as you may find that one advisor's opinion conflicts with another and this is no doubt just one of the reasons why Dale is being careful to make sure he has all the facts before coming to conclusion.

I personally have decided to wait until Dale has finished his investigations into Hybrid Trusts and related asset protection issues because he is certainly the one professional that I have a great deal of confidence in.

Gordo
 
Last edited by a moderator:
Reply: 3.1.1.1.1.2.2.1.1.1
From: Mark Laszczuk


Gordon,
Couldn't agree more. What a champion. I reckon I've gotta have one of the best investing teams in Australia. I've got Dale for an accountant, Steve Navra for financial advice. Now I just need a good lawyer. Reckon I might have to give Kevin a bit of a tingle.

Mark
'no hat, some cattle'
 
Last edited by a moderator:
Reply: 3.1.1.1.1.2.2.1.1.1.1
From: Paul Zagoridis


I'll also wait for Dale to finish his analysis.

However I'm guessing the units are preferential income units -- i.e. they have priority to the income in order to repay the bank debt of the unit holder.

My guess would be for the trustee to redeem the units at the same rate as the amortisation schedule. Therefore they are worth precisely what the bank is owed.

Given the bank is a secured creditor, they aren't the scary monster in this scenario.

I know a company director whose house is at risk. The company was liquidated and he wasn't involved in the company for the last 5 years. But if it proved they incurred debt while insolvent then the directors are personally liable.

So I like all the asset protection I can get.

PaulZag
Dreamspinner
WealthEsteem :: Psychology of the Deal
http://www.wealthesteem.org/
 
Last edited by a moderator:
Top