setting up a trust - when?

[Anonymous]

From: Anonymous


Hello everyone,

I am about to buy my first IP. I've read on this site some information about trusts. My question is - when is the right time to set up a trust? We are planning to own multiple IPs in the future. Should we wait until we own at least 2 until we set up a trust, or is one IP enough? At present there is only my husband and I in our family (no kids, and no firm plans to have them in the future).

Thanks in anticipation of any advice from anyone.

Anon.

 

[DaleGG]

Reply: 1
From: Dale Gatherum-Goss


Hi

I'm going to break my own rule to answer this question, but . . .

Before you do anything, you should clearly define your reasons for investing. That is, are you investing to buy one property to save a little tax; or, are you planning to buy a dozen properties that will provide you with a stream of income one day in the future?

Why is this important?

It is because if you are buying just one - a trust will not be what you want.

However, if you are buying a dozen then you really need to start with a trust now as this way, you will be able to protect your assets from attack; and, have the flexibility to choose what rate of tax you pay on the income and capital gains in the future.

I hope that this helps and good luck either way

Dale

 

[see_change]

Reply: 1.1
From: See Change


Just to further clarify Dale's point about when now is.

If you are buying in Q'land the trust needs to be set up before you sign a contract . The "or Nominee" phrase case only be used for entities in existence at the time you sign. Even then the agents like to be able to put the full details of the entity in the contract when you sign.

see change

it's better to be guided by your dreams than your fears

 

[Sim]

Reply: 1.1.1
From: Sim' Hampel


I think you will find that what you described is actually the case in most states SC, it's just that some states are more relaxed about it than others.

 

[WebBoard]

Reply: 1.1.2
From: Steve Piggott


Hello there!

Asset protection is one of the issues we will wish we addressed before the event when its needed occurs!!

Setting up a trust is not complex or expensive, in fact it can be the most important step in building your assets.
The deeds to the trust can be drafted specifically to suit your needs.
As a property investor every IP should sit safely in the arms of a trust.
I know it makes it initially difficult to borrow as LMI is not easy to obtain, but personally 80% LVR gives a little more comfort for both the lender and borrower.
If we are a little more educated in the area of asset protection and structures it will save a lot of grief.
The when to do it?
If we want to contain something we first need the container. I know I was so excited about buying my first property and fortunately I was convinced that I first needed a suitable structure.
Let me give you a real life scenario.
Mr X bought 3 IP's in his own name.
All were financed by the same lender and cross collateralised with his PPOR with an investor package with LOC.
Mr X used Landlords Insurance and was also handy with fixing small things on his IP's.
Mr X was asked by the tennant to supply an airconditioner so he fitted one in the window frame and a power point was nearby.
The AC required a 15amp PP but the easy thing to do was to change to a 10amp plug and use the nearby power point.
The electrical capacity was overloaded and as a result a fire broke out and guttered both of the roof sections of the 2 attached IP's. No one was injured but the water damage spoiled all the contents and the insurance company investigated and did not pay out as a result of discovering Mr X's electrical negligence. The tenants were represented by the tenancy tribunal and the landlord Mr X was now up for damages and legal fee's with no insurance.
Mr X lost all his IP's and his PPOR due to his negligence and lack of structuring.
If Mr X had used Trusts with a Company as trustee he would have been able to keep at least one IP and his PPOR.
For $300 per trust what would you prefer to happen.
I guess I have learnt as a result of this.
Just glad it wasnt me.
Trust in trusts.

Happy Investing Neb

 

[Debbie]

Reply: 1.1.2.1
From: Debbie .


Steve

You say it is only $300 per trust to set up. I talked to my accountant some time ago in regards to setting up a trust and was advised against it as 1) Very expensive to set up
2) Very expensive to run.

I was told it would cost approx $1000 - $2000 to set it up and at least $2000 per year to do the books for tax.

I know I need to find a new accountant, but don't know where to look. If your accountant is Sydney based would love to talk to him.

Thankyou
Deb

 

[Sim]

Reply: 1.1.2.1.1
From: Sim' Hampel


Debbie,

You might be seeing a difference between the costs of the trust structure itself (registration etc), and the costs of your accountant's services to perform the work.

Trusts are cheap, accountants to set them up properly are not.

 

[duncan_m]

Reply: 1.1.2.1.1.1
From: Duncan M




In addition to this:

Once you have:

a) A corporate trustee established (around $1200)
b) A set of Trust Deeds written (around $400)

You can establish a new Trust for $10 and one visit to your Office of State
Revenue.. No new involvement from your Solicitor or Accountant.


Duncan.

 

[WebBoard]

Reply: 1.1.2.1.1.1.1
From: Kevin Forster



First of all I'd just like to say that I'm not against trusts. I'll be using one in the future once I have something to protect.

Initially when you are buying IPs you have a lot of debt and very little equity. The money you spend creating and maintaining a trust could be spent creating equity through a kitchen reno, repaint, recarpet, or part of a deposit for the next IP.

After a while you will have enough IPs and some substantial equity then you implement asset protection.

Although Neb's little story was supposed to highlight the value of trusts, it also raised a number of other points.
1. Always get qualified professionals to do the work that you are not qualified to do, including setting up trusts, legal structures, etc.
2. Don't invalidate your insurance.
3. If Mr X had a trust he would not have lost his PPOR and one IP. Then the tenants would have been out of pocket because of his stupidity. Are we going to use trusts to get out of our obligations? If you, do then you're in the same boat as Alan Bond, Christopher Skase, Jodee Rich, Brad Keeling, et al.

My suggestion is that you start using asset protection once your half way to where you want to be, or when you have more to gain than lose by spending the money to set up the structure.

 

[WebBoard]

Reply: 1.1.2.1.1.1.1.1
From: E L


Duncan
I'm curious - so once you have a corporate trustee and trust deed written, is it just a case of walking into the office of state revenue and getting another trust established based on the existing deed??
Seems too easy......
Cheers
Elizabeth

 

[duncan_m]

Reply: 1.1.2.1.1.1.1.1.1
From: Duncan M


Elizabeth,

That is correct.

In SA, the form to lodge is an "Application For Opinion", if you ask nicely,
they'll stamp your Trust Deed on the spot and you're all done.

You'll need to make minor modifications to the Trust Deed, the new Appointor
and Settlor, if they've changed and of course the name of the new trust.

Regards,

Duncan.

-----Original Message-----
From: propertyforum Listmanager
[mailto:[email protected]]
Sent: None
Subject: RE: setting up a trust - when?


From: "E L" <[email protected]>

Duncan
I'm curious - so once you have a corporate trustee and trust deed written,
is it just a case of walking into the office of state revenue and getting
another trust established based on the existing deed??
Seems too easy......
Cheers
Elizabeth



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[tonyd]

Reply: 1.1.2.1.1.1.1.1.1.1
From: Tony Dixon


I have a few more questions regarding trusts.

A corporate trustee owning the IPs is the preferred structure for asset protection.

Should the IPs be split across multiple companies, each owning, say 2-4 each?
Each controlled by the same trust?

And what about 'personal assets' e.g. your PPOR, car, furniture, cat...
Should these assets be purchased in the name of the same trust? By a separate company?
I recall Dale mentioning that the trust should own nothing, but I wonder if the same applies to non-revenue earning assets.

cheers, Tony

 

[DaleGG]

Reply: 1.1.2.1.1.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Tony

You must have misunderstood something that I said. I would not suggest that your trust not own anything . . .

I am a big fan of trusts and buy my assets through a trust; and, actively advocate others doing so as well.

Dale

 

[tonyd]

Reply: 1.1.2.1.1.1.1.1.1.1.1.1
From: Tony Dixon


Hi Dale,

>You must have misunderstood
>something that I said. I
>would not suggest that your
>trust not own anything . . .

I probably have misunderstood something.

There was a discussion a few months ago about which entity should own IPs - the trust itself, or the company (which is a trustee).
You indicated that the IPs should be purchased in the name of the company.

It may have just been an offhand remark but (from my fading memory) you said something like "the trust doesn't own anything".

(As an aside, isn't the search engine for this forum appalling?)

Obviously you were indicating that the trust only controls IPs through a corporate trustee.
But I was wondering about non-income-producing assets; hence my questions above about which entity should buy the family car etc.

Thank you for your patience.

cheers, Tony

 

[Sim]

Reply: 1.1.2.1.1.1.1.1.1.1.1.1.1
From: Sim' Hampel


Tony, I think you may be getting confused by the semantics of trusts...

Some comments (in my non-professional non-advisory and possibly incorrect opinion):

1. Trusts are a "legal fiction", they are not a tangible thing with real assets like companies - so they cannot actually "own" anything.

2. An asset is not held "in a" trust, it is held "in" trust, which is legalese for "I'm hiding this asset in a structure for it's protection". Think of a medieval knight with landholdings (and a wife and family) who is about to go off to fight in the crusades. He goes to a monk who creates a document offering protection of the land. The land is held "in trust" by the monk. If the knight dies in battle, rather than losing the land to the king, the trust endures and the family are provided for from the income out of the trust (the income comes from the land).

3. The asset held in trust is essentially controlled by the trustee of the trust, that is, the person or entity which holds the legal right to control that trust and the assets in it.

4. Since the trust is not a tangible thing, it can't actually sign things like contracts. It is the trustee who does this stuff "as trustee for" the trust.

5. If I had a Family Trust called "The Hampel Family Trust" and a corporate trustee called "Hampel Holdings Pty Ltd" then when I signed a contract for the purchase of the property, the name on the contract would most likely be something like "Hampel Holdings Pty Ltd as trustee for Hampel Family Trust". That is the only place the trust is actually mentioned. All other documentation references the trustee name.

6. This is not the only way to do it, your accountant will advise you of the best way.

7. This is not advice, I am not an accountant.

 

[tonyd]

Reply: 1.1.2.1.1.1.1.1.1.1.1.1.1.1
From: Tony Dixon


Hi Sim,

You are correct about my confusion.
I was thinking that a trust was simply another entity like a company, just playing by different rules. But it seems to be fundamentally different.

Time for me to do some more reading!

Thanks for your help!

cheers, Tony

 

[Sim]

Reply: 1.1.2.1.1.1.1.1.1.1.1.1.1.1.1
From: Sim' Hampel


Tony, have you been to Dale's Tax Battles seminar ? Find out when the next one is near you - http://www.freestyler.net.au/events/events_dale.html ... Dale is very good at explaining how these structures all hang together. Dale also has a "manual" out which is quite comprehensive and well worth the money.

 

[tonyd]

Reply: 1.1.2.1.1.1.1.1.1.1.1.1.1.1.1.1
From: Tony Dixon



>Tony, have you been to Dale's
>Tax Battles seminar ?

I've made an 'expression of interest' for Dale's Perth seminar.
Hopefully he'll make it over here.

>Dale also has a "manual" out
>which is quite comprehensive
>and well worth the money.

...and I was thinking about that very manual as I went to lunch.

cheers, Tony