Positive experiences with trusts

P

Propola

Hi

Im new to this forum so hopefully my questions make sense :p

We are planning on buying a property to live in (we already have 2 properties one is rented out and the one we live in we plan to rent out)
I have been investigating buying the new house through a trust so that we can negatively gear it.

My partner is skeptical about it and says if it was a good way to buy a house why isn't everyone doing this?

Through my investigations i found that the negatives are:
1) you have to make sure the trust is worded in such a way that it allows for negative gearing and it has to be a hybrid trust? (im not too sure about this yet)
2) You have to pay Land Tax and CGT
3) There are the high set up fees and ongoing annual account keeping fees
3) Extra paper work at tax time and i guess throughout the year

My main question is does anyone own properties through a trust and has found it to be a positive and worth while experience?...if not what are the traps?

Thanks in advance :)
 
Propola said:
My main question is does anyone own properties through a trust and has found it to be a positive and worth while experience?...if not what are the traps?
Click to expand...

We hold some through a Trust. I would have to say it has not been a positive experience.:eek: Not everyone has the same experience as me though.
 
banks are reluctant to finance on them
ato hates them and there are several unresolved rulings regarding htd's
no asset protection
no land tax threshold in many states
higher ongoing management fees (acct, asic etc)
when property goes positive and reverts to dt, if you're wanting to disperse to other party, hdt has to pay out unit holder and unit holder has to pay cgt at that time

... might as well have it in your personal name.

we've just unwound ours.
 
Hi

Thanks for your throughts everyone :) seems like it's not a good diea then - safer and easier to buy in your own name

Thanks again
 
Propola said:
We are planning on buying a property to live in (we already have 2 properties one is rented out and the one we live in we plan to rent out)
I have been investigating buying the new house through a trust so that we can negatively gear it.
Click to expand...

I don't believe any house you actually live in be negatively geared, whether in a trust or not? Or have I read this incorrectly, and possibly need my second coffee?

(Sorry if I have misinterpreted this sentence.)
 
Trusts are good if you need asset protection. In our situation we have our own business where we have a HIGH risk level of being sued - just par for the course really when you deal mostly with people in the USA. For us, ensuring our assets are protected is essential, so a trust is the best way for us to go.

I think if you're in a regular PAYG job, then a trust is usually overkill.

In terms of additional admin, there is the ASIC forms that need to be lodged annually which our accountant prepares, and it takes a bit more effort to setup bank accounts and the like (you need to take trust deeds etc), but from a day to day perspective I don't notice much additional workload.

From a neg gearing perspective, I don't know much about HDT's, but for regular DT's the losses stay in the trust, so you either need to "suck it up" and carry forward the losses until you have +ve CF and then distribute or be able to move other income (ie business income, not PAYG) in to absorb the losses.

Cheers
Buddybee
 
And check out the CGT implications. If it is to be your PPOR then, as Wylie said, negative gearing doesn't come into it. But check you won't be paying CGT or land tax on your PPOR as both charges would not apply to a PPOR in your own name.
Marg
 
Positive Experience with Trusts

The real benefit of a trust is as discussed by Buddybee is they do or can offer asset protection. If you and your partner are PAYG then it really isn't worth it. By placing the property into the trust the owner of the property is the Trust not you and your partner. Accordingly when you do dispose of the asset, capital gains will be payable. Normally as you are aware the PPOR is CGT free. If this was an investment property as Propola has stated any losses are carried forward and subsequently any CGT is reduced by these carried forward losses.

A Trust is not appropraite if you are buying a PPOR unless you need asset protection.

A Trust may be appropriate if you are creating a property portfolio and you wiil/have sizable /substantial carry forward losses.
 
skater said:
I'd like to do that too, but we have a heap of losses in there. We need something to mop them up before we go that route.
Click to expand...

unwound our hdt ... still have our dt with massive losses stuck in it. also need something to mop up the losses ...
 
Of course accountants/solictiors are flogging trust, it's cash cow for them. This asset protection claim I am highly suspicious, one never knows until it is tested in court. I am sure a smart lawyer can crack something that set up by your joe bloke accountant or solicitor. Much like the spruikers scare
people about being poor in retirement or financial "planners" scare people into buying unnecessary/inappropriate insurance.
 
a mate just lost everything that wasn't in his family trust. Stress test your position.... could you survive if this happened to you?
 
bornfree said:
I am sure a smart lawyer can crack something that set up by your joe bloke accountant or solicitor.
Click to expand...

yes but that lawyer would cost more than a lot of people on this forum are worth, it's a very risky litigation and most would see it as chucking good money after bad
 
Got rid of our HDT and within a year at most only shares will be held in the remaining discretionary trust.

Some accountants charge outrageous fees for processing of even the simpliest trust tax returns especially when there are only a small number of holdings held by the trust such as a couple of IPs. So shop around and avoid those that have a set relatively high minimum fee regardless of how simple your tax return is likely to be. Another tip is to pay and manage your own annual ASIC fee/return and related correspondence especially for investment Trusts where the company is doing nothing other than acting as trustee. It is dead simple so spend a short time on the ASIC website to find out how simple (and done mostly online) this is and save by doing it yourself as opposed to your accountant.

It will also be interesting to see where Trusts stand when the current Government start getting serious about implementing some of the Henry review recommendations. Unless there is a serious need for asset protection (and investigate all alternatives NOT just trusts) for my own personal affairs I'm come to the conclusion that keeping things SIMPLE is best! But this is just my view based on our situation. There is no one right answer.

Cheers - Gordon
 
Looked seriously a few years ago at trusts. Decided not to go ahead.

The advantages claimed by accountants:
1. 'Asset protection'. How relevant is that for employees? Risk seems negligible. Seems like a scare tactic used as a sales tool.
2. Income distribution to low-income earners to reduce tax.

The costs of trusts:
1. Ongoing maintenance costs: accountants, reporting, ...
2. More complexity to manage / deal with.
3. Higher land tax & CGT

On top of that, there have been a few changes in the tax treatments of trusts recently that have made them not so useful.

There was nothing compelling in our situation.

Everybody's situation is different though.

The difficulty with this topic is that the people best placed to advice on this (accountants) have an inherent conflict of interest.

Cheers,

Cheers,
 
To use a trust or not is a good question. The basic pros & cons have already been described.

For me (self employed) a trust can be quite useful as I have a (small) need for asset protection and I can structure my income better using the trust.

If you're PAYG, a trust probably isn't worthwhile unless you're working towards a portfolio of sufficient size to take over your day job, and you can accept that there will be costs involved.

Most of the people I see with 5+ properties hold them via trust structures for various reasons, but there are plenty of exceptions both above and below this figure.

My suggestion is that you educate yourself in the aspects of trusts and make an educated decision rather than relying solely on the advice of others.
 
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