Recommendations for Family Trust, and cost?
- Thread starter monalisa
- Start date
Thank you all for your valuable responses 
We are considering our investment strategy, and if we do decide to get some positive cash flow properties, it won't be worthwhile getting in mine or MsAli's name (unless we acquired heavily negatively geared ones at some stage).
We are 26, so I am not even thinking about super! Who knows what will happen with the rules down the track - I want to be able to control my funds, and wouldn't want them in a highly regulated environment, where I have little control for a long time!
Many thanks all
We are considering our investment strategy, and if we do decide to get some positive cash flow properties, it won't be worthwhile getting in mine or MsAli's name (unless we acquired heavily negatively geared ones at some stage).
We are 26, so I am not even thinking about super! Who knows what will happen with the rules down the track - I want to be able to control my funds, and wouldn't want them in a highly regulated environment, where I have little control for a long time!
Many thanks all
All this trust stuff is very confusing, still don't know how they work, even though I have a couple set up.
I believe they are Family Discretionary Trusts.
Here's how my accountant says they work:
The income flow is as follows:
I believe they are Family Discretionary Trusts.
Here's how my accountant says they work:
The income flow is as follows:
- Our Business pays dividend to Family Trust 1.
- Rental loss in Family Trust 1 is used to offset against this dividend income.
- Any excess profit needs to be distributed out.
- Then Family Trust 1 can distribute to Family Trust 2, so that rental loss generated from Family Trust 2 can be taken up against trust distribution.
- If there is still excess trust income, it needs to be distributed to Wife or Myself.
- Trusts can distribute income between each other.
- That way, all rental loss can be of use.
Ace
summary is good.
1. if franking credits attached to dividend are greater than $5k trust one will need to have made a family trust election otherwise franking credits will be lost.
2. trust 2 which has a loss will need to make a family trust election and the profit trust 1 will need to make an interposed entity election and a family trust election. see Q19.4 http://www.ato.gov.au/individuals/PrintFriendly.aspx?ms=individuals&doc=/content/40272.htm
as long as you have made those elections you are fine. otherwise major issues.
summary is good.
1. if franking credits attached to dividend are greater than $5k trust one will need to have made a family trust election otherwise franking credits will be lost.
2. trust 2 which has a loss will need to make a family trust election and the profit trust 1 will need to make an interposed entity election and a family trust election. see Q19.4 http://www.ato.gov.au/individuals/PrintFriendly.aspx?ms=individuals&doc=/content/40272.htm
as long as you have made those elections you are fine. otherwise major issues.
Ace- when you have a business, it's a similar deal to a positive geared property. You have income greater than losses- so it's straight forward.
It's when people only have a negatively geared property that it becomes not as straight forward.
A trust must distribute all profits- but it cannot distribute losses. They must be kept within the trust- carried forward if necessary.
It's when people only have a negatively geared property that it becomes not as straight forward.
A trust must distribute all profits- but it cannot distribute losses. They must be kept within the trust- carried forward if necessary.
Thanks for confusing me more coastymike
But thanks, really.
Will refer back here when that time comes around with my accountant.
But thanks, really.
Will refer back here when that time comes around with my accountant.
hahah it is confusing even for accountants. let us know how you get on.
Ace
You also have to consider the legal issues. Technically you could be breaching the laws against perpetutites if Trust 1 distributes to Trust 2 and Trust 2 has a vesting date after that if trust 1. This is because a distribution from trust 1 could last more than 80 years before being vested.
In practice this probably wouldn't be picked up or even if it was it may not be an issues because there is a 'wait and see rule' - you could wait and see if the receiving trust vests before 80 years is up.
You also have to consider the legal issues. Technically you could be breaching the laws against perpetutites if Trust 1 distributes to Trust 2 and Trust 2 has a vesting date after that if trust 1. This is because a distribution from trust 1 could last more than 80 years before being vested.
In practice this probably wouldn't be picked up or even if it was it may not be an issues because there is a 'wait and see rule' - you could wait and see if the receiving trust vests before 80 years is up.
I am in the same boat, looking at whether a trust is beneficial for investment property.
I did the calculations on my partner and I with a 50-50 split, with one of us earning vs a discretionary trust. In terms of CGT I found there was no real benefit, full details here;
thydzik.com/to-trust-or-not-to-trust-the-benefits-of-a-discretionary-family-trust-for-minimising-cgt/
I realise there are probably other benefits that I haven't accounted for. There are definitely benefits for positively geared properties, but I was mainly interested in CGT.
Experts let me know your thoughts.
I did the calculations on my partner and I with a 50-50 split, with one of us earning vs a discretionary trust. In terms of CGT I found there was no real benefit, full details here;
thydzik.com/to-trust-or-not-to-trust-the-benefits-of-a-discretionary-family-trust-for-minimising-cgt/
I realise there are probably other benefits that I haven't accounted for. There are definitely benefits for positively geared properties, but I was mainly interested in CGT.
Experts let me know your thoughts.
thydzik
Good analysis.
The effects of any CG distributed between 2 people will reduce as the gain gets higher as the income of the two people will even out.
A smaller gain may be able to be given to the non working spouse without any tax payable, such as a $40k CG to a non working spouse. But a larger gain may result in less tax savings.
However the real benefit is flexibility. eg. You may have 5 beneficiaries who are not working and could distribute a $200,000 gain to them without any tax payable at all.
It will all depend on the specific situation.
Good analysis.
The effects of any CG distributed between 2 people will reduce as the gain gets higher as the income of the two people will even out.
A smaller gain may be able to be given to the non working spouse without any tax payable, such as a $40k CG to a non working spouse. But a larger gain may result in less tax savings.
However the real benefit is flexibility. eg. You may have 5 beneficiaries who are not working and could distribute a $200,000 gain to them without any tax payable at all.
It will all depend on the specific situation.
what about from a practical POV though? are there not a lot less options for getting finance for resi properties if buying in a unit trust?
it's all well and good having a great trust on paper but if it significantly inhibits your expansion it negates the positives imo
Yes, that is true. No use getting a structure if you cannot get a loan.
But unit trust structures can be financed up to 90% with major banks.
I found this attached document on the web. Hope it gives some upto date info.
To me, it sounds like the cost of a unit trust is justified if we
1. have passed the tax threshold in state
2. buy cf+ IPs
Is it possible to transfer the shares to a company at later stage hence adding 'asset protection' element into it?
To me, it sounds like the cost of a unit trust is justified if we
1. have passed the tax threshold in state
2. buy cf+ IPs
Is it possible to transfer the shares to a company at later stage hence adding 'asset protection' element into it?
You have to be careful for the stamp duty thresholds and requirements vary from each state.
And, also careful with transferring units. It is possible to transfer units from a trust to a company or to another individual etc whether in personal capacity or as trustee. But, CGT may apply as well as stamp duty. In NSW the stamp duty is currently 0.60% of the value of the units - but this is due to be abolished next year.
Transferring and asset protection - would also mean you have to look at the bankrutpcy act and/or corporations act and clawback provisions.
