More than one family trust

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From: Michael Mudman


Interested in everyone's thoughts on whether it would be a good idea to set up a separate family trust for each additional property purchased, having only one property per trust?

One reason for this could be reduced land tax, since it is calculated on a sliding scale and less land tax would be paid on 2 separate properties than the same 2 properties held under the one structure.

What about in regards to asset protection - would there be any difference?

Any comments? For or against? Advantages/Disadvantages....?
 
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Reply: 1
From: Dale Gatherum-Goss


Hi Michael

To be perfectly honest, I would think that the establishment costs, and, the ongoing accounting and compliance costs would outweigh any land tax savings.

This is a strategy that I am often asked about and I do not really feel that it is necessary. Certainly not for each individual property.

I have seen people with up to 21 trusts (Rich 200 list person) but, that was to hold multi million dollar properties (12 years ago or more now) and various businesses.

Most commonly, I see one trust with 4 to 6 IP's before people create a 2nd trust and often that is for other reasons like borrowing capacity.

I hope that this helps

Dale
 
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Reply: 1.1
From: Donna L


Not sure where you are but I think the
Land Tax issue varies from State to State.
In NSW family trust pay Land Tax from $1
so no benefit from this point of view.
Please correct me if I am wrong as my
Trust has a property valued at $190k and
pays Land Tax of around $700 a year.

Donna L
 
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Reply: 1.2
From: Owen .


Hi Dale,

What about having a separate trust for doing renovations? I know that my trustee company shouldn't be doing any trading but what about renovating the properties held by the trust controlled by the trustee company. Should this be a separate company and if so, does it need a trust attached (can't see why)? Also should my trustee company charge my reno company for services? Is this a good way of moving profits around? I hope this makes sense.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 1.2.1
From: Richard Hunt


Owen,

It makes prudent business sense to have your renovating business conducted by a separate entity to protect your IP assets and personal assets from potential claims. A separate company acting as trustee for a trust conducting the reno business (and charging for services) should achieve this and provide you with a similar ability to distribute profits.

Regards
Richard
 
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Reply: 1.2.1.1
From: See Change


In Q'land there is a land tax threshold for trusts and companies of 150k which is lower than the threshold for individuals $221, 665).

See change

it's better to be guided by your dreams than your fears
 
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Reply: 1.2.1.2
From: Owen .


Richard,

Thanks for that. It's what I thought (I think I read it somewhere).

Is a company trustree/trust setup necessary for the reno business or just a company?

I'm thinking the investment trust buys a property and contracts the reno company to fix it up. All costs are paid for by the reno company and then paid for by the investment trust as a distribution of profits. Funnily enough none of the entities end up making a taxable profit.

Is this how (a simplified version of it) would work?

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 1.2.1.2.1
From: Richard Hunt


Owen,

A trust for the reno business isn't absolutely necessary, a company will suffice. It just means you need to more closely manage the strategy for the distribution profits out of the company, which will depend on your particular personal circumstances.

There are a number of alternatives you could adopt when charging for the reno company's services, one is that the company charges a reasonable mark-up on its costs to the IP trust.

With this alternative, to avoid the company deriving a profit before the reno is actually sold (eg. reno & sale straddle y/e), the terms of the reno agreement between the company and IP trust should ensure that no income is derived by the company before the reno is actually sold.


Regards
Richard
 
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Reply: 1.2.1.2.1.1
From: Owen .


Thanks Richard. They are the kinds of ideas I am after. Something to investigate further.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 1.2.1.2.1.1.1
From: Terry Mc


I have previously discussed the
multi-trust approach with a Melb. property
lawyer. His thinking is that individual
trusts mean that a tenant sueing (!) can
only try for the assets in the one trust.
Each of your others, and your personal
assets, are quarantined. Individual trusts
will be more expensive, and I don't know
how you can balance the cost against the
risk! Also more in it for the lawyers, and
the accountants... :)
Terry Mc
Finance
 
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Reply: 1.2.1.2.1.1.1.1
From: Mark Laszczuk


From my understanding, the trust itself cannot be sued, since it is not a stand alone entity (someone correct me if I am wrong). Only the trustee can be sued. With is why you have a non-trading company as trustee, with can be dropped as trustee in the case of litigation, leaving the assets in the trust protected. Is this correct?

Mark
'no hat, some cattle'
 
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Reply: 1.2.1.2.1.1.1.1.1
From: The Husband


Mark

Thanks for that. What about if a tenant slips and breaks their bum in your property which is owned by you as trustee. Do they sue you or your trust. ie the property is at fault (broken step for example), are your personal assets at risk?

TH
 
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Reply: 1.2.1.2.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi TH

It is the trustee of the trust who is sued, not the trust itself. This is why most solicitors and accountants will recommend a company trustee and not an individual.

Your personal assets should not be at risk unless you are the trustee, or, you have acted fraudulently, or dishonestly.

If the trustee is sued, it is normal practice for the appointor or guardian of the trust to sack that trustee company and replace it with a brand new trustee. This way, the assets within the trust are protected.

I hope that this helps

Dale
 
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