Setting up Family Trust with Corporate Trustee

Hi all,
About to (re)start my investment journey, have set up LOC for deposits etc & now want to set up a family trust with a corporate trustee.
I am looking to purchase numerous properties over next 10years & want to protect these assets as well as enjoy the preferential tax treatment against the earnings of the portfolio.


Does anyone know what cost is involved in this? (I am aware that ASIC charge $800 alone for the co. setup).

Anyone in Melbourne's east can recommend a good accountant to set up these structures?

Thanks in advance
 
Are you expecting the properties to be negatively geared? If so, are you ok with the fact that tax losses in a family trust (including depreciation) cannot be distributed and would have to be rolled over in the trust?

The preferential tax treatment, as you call them, mainly relate to being able to distribute to different family members. Which only applies if you're making a taxable profit in the trust.
 
Our analysis shows that unless you’re on a very high income (say > $200k) and as long as you have a strong cash flow (i.e. you don’t need the gearing benefits from a cash flow perspective), holding property in a discretionary trust works out better in the long term (say over 20 years) from a taxation perspective. That said, it does depend on individual circumstances.

By the way KidsInheritance, make sure the deposit loan is in the trusts name. If not, you’ll have to lend the money into the trust which will break down some asset protection.
 
Stuart, does your analysis only take into account the one property over 20 years? Is it still advantageous if the person keeps refinancing to buy more, as most of us do?
Alex
 
That's the problem. If your strategy is to continually refinance to access more equity to purchase more property, it's likely the portfolio overall will be negative before tax until this strategy is changed.
 
Not if you use a land tax unit trust in NSW. Gets the land tax threshold so the same as holding in your own name, asset protection isn't as good as a discretionary trust but you get negative gearing plus the option to move to superannuation at a later stage or adopt the refinancing principle. Something that cannot be achieved by holding it in your own name.
 
Hi Alexlee, yes planning to build portfolio with positive cashflow IP's or those that with some value add's can turn around to neutral / positive pretty quickly.
Given this, want to minimise tax so hence a family trust seems like a good option.
StuartW, good point re deposit monies being in name of trust, can you elaborate on the breaking down of asset protection given loaning funds to trust?
Thanks
 
Stuart, does your analysis only take into account the one property over 20 years? Is it still advantageous if the person keeps refinancing to buy more, as most of us do?
Alex

Hi Alex

It's highly unlikely that its best for any investor to hold all their property in one type of ownership structure (e.g. all in personal names or all in discretionary trust). Often, the best solution is to use a number of structures for different property in different States.

It's different again for self-employed people as that can use a discretionary trust tax effectively.
 
StuartW, good point re deposit monies being in name of trust, can you elaborate on the breaking down of asset protection given loaning funds to trust?
Thanks

Hi KidsInheritance

If you loan money into the discretionary trust then you'll have an asset in your personal name (i.e. the trust owes you money) and the trust will have a liability. Therefore, if you get successfully sued, the court might ask you to call in the loan to the trust (your asset). If the trust can't refinance and pull out equity in its property to repay your loan (which is probably likely if you're in financial trouble), then it will have to sell the property (and use the cash to repay the loan). Therefore, its best to have the deposit loan in the trust’s name from day one. Once the trust's property has increased in value in the future (and LVR is < 80%), you can release your home as security and the loan and property will be neatly inside the trust.

Hope that makes sense.
 
planning to build portfolio with positive cashflow IP's or those that with some value add's can turn around to neutral / positive pretty quickly.

Positive cashflow generally refers to after-tax cashflow. So you'll need the tax benefits in most cases to make the deal put cash in your pocket. Positively geared (puts cash in your pocket before tax) will need about 9-10% yield, more if interest rates rise. On a 90% lend any less than this yield and the trust will be accumulating tax losses.

As Stuart points out however, tax losses in a discretionary trust are ok if you have another trust to distribute income across to soak up losses.
 
Positive cashflow generally refers to after-tax cashflow. So you'll need the tax benefits in most cases to make the deal put cash in your pocket. Positively geared (puts cash in your pocket before tax) will need about 9-10% yield, more if interest rates rise. On a 90% lend any less than this yield and the trust will be accumulating tax losses.

Spreadsheet attached if you want to do the numbers. Not my work and I can't take any credit - it was originally posted here a number of years ago.
 

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