Setting up Trusts

[brrmm]

Hi, first post here, so go easy on me OK?

Just finished reading the Chan & Naylor books which have sparked my interest in investing in residential property.

Done loads of reading on the 'net about structures, financial planning, etc etc and starting to do my head in frankly.

Hubby and I are only interested in residential property (that's what we're comfortable with at the mo) and would like to structure something to protect our assets and pass them on to our kids.

But WHO in the world do we approach about setting this all up?

Chan & Naylor website shows costs and they seem rather steep, but you experts may know differently.

Do we approach Solicitors/Lawyers; Accountants or Fin Planners?
We do not want to purchase anybody's products but simply buy real estate. We have plenty of equity in our PPOR to jump right in.

But where do we go from here.............we're in inner Brisbane northside if that helps any.

Cheers.

 

[klublok]

You can go to any lawyers and/or accountant to get a trust set up. They usually cost around $800 - $1,500 for that.

Alternatively you can set a trust up over the internet for about $300.

Keep in mind however that if you want to buy properties inside your trust, you may not be able to get any negative gearing benefits. I know Chan and Taylor says that you can, but I think the ATO is onto some of these arrangements already.

I am not sure if you really need a trust to protect assets if you are employees. However if you are running your business, having your investment assets in trusts could provide some degree of asset protection. Plus trusts are not as effective as asset protection vehicles nowadays if you don't set them up right.

In relation to passing assets to your kids, and protecting them you should consider having a testamentary trust in your wills.

 

[jrc77]

I would suggest that you talk to your accountant about getting one set up - assuming this is who will be doing your trust tax return. At least they are then in the loop.

If you don't have an accountant - might need to find one for the trust

Regards,

Jason

 

[Ausprop]

or cleardocs... $137

 

[brrmm]

Thx for the good advice.

Yes, "set them (trusts) up right" is exactly what I need advice on. Don't think my local accountant would be up to the task.

Klublok, you're right about Chan & Naylor advising in their book about negative gearing in the trust, and the book is based on the 2009-10 tax year!

This is exactly the sort of in-depth knowledge I really need before buying property.

So if it is Accountants that do the set up and have the tax knowledge of trust structures - any recommendations for Brisbane based ones?

Please no "garden-variety" accountants, I already have one of those !

 

[shuggy]

don't do it..... do a lot lot more reading on here and you'll come to the same conclusion.

 

[Ausprop]

don't do what Shuggy?

 

[The Y-man]

Hubby and I are only interested in residential property (that's what we're comfortable with at the mo) and would like to structure something to protect our assets and pass them on to our kids.

I note "kids" in plural. If you go down the path of trusts, remember that you still need to consider who or what will have control of the trust after your passing.

Do a search on this forum for "HDT" - there has been some discussion regarding tax treatment of any shortfalls in cash flow while owning property. If you are intending to put in enough capital to be +ve cashflow, then this isn't such an issue. You can also have more challenges getting loans for a trust than for yourselves.


Cheers,

The Y-man

 

[brrmm]

Thx for all your replies.

Shuggy - You don't like trusts? Can you explain why? Interested in all points of view here.

Y-Man - I did a search as you suggested, thxs. My heads spinning now with lots of info. If we set up a trust it will be purely to hold properties and was hoping (as per Chan & Naylor) that neg gearing could be passed on to hubby and income to me (lowest earner).

Still unsure if that is possible.

Re challenges getting loans. I was hoping to use the services of a respected and "creative" broker who knows all the how-to.

Comments anyone?

 

[The Y-man]

Still unsure if that is possible.

Nor is anyone else at this point - I guess we're waiting for the first court case of ATO vs <enter first test case person here> to set a precedent ruling.

Cheers,

The Y-man

 

[The Y-man]

Re challenges getting loans. I was hoping to use the services of a respected and "creative" broker who knows all the how-to.

I didn't say you couldn't - just that there are mnore challenges - like probability of lower LVR's, higer interest rates etc than thru personal.

Also, remember that you may give up other discounts available to individuals, such as the 50% CGT discounts, Land Tax concessions etc.

Cheers,

The Y-man

 

[brrmm]

Thx again everyone for your input.
My mushed up brain has been reading and reading today and came across some interesting stuff from House of Wealth and his blog.

He's advocating that it's still possible to use a HDT for neg gearing as long as the trust Deed is worded correctly. He explains it much better than I ever could so do have a read on their website.

Thought I'd like to contribute a little something here myself!

 

[Terryw]

It is still possible to negative gear thru a HDT but the deed has to be so restrictive that it is virtually has no benefits over buying individually. It may also have many disadvantages, especially in the extra accounting fees and restricted loans.

I suggest you take your time and start reading as much as you can on trusts. Maybe make up a table outlining their advantages and disadvantages and the weigh it all up. Ideally do this before you go and see an accountant so that you can understand things more in general. You don't need to know things in detail, just general basics will do.

Then, before you go ahead with your accountant's advice come back here and post it. Ask people what they think and get some different opinons.

 

[brrmm]

Good advice there TerryW, thank you.
And thank you all so very much for all the advice given freely, much appreciated.

Hubby went ahead and made an apptmt to see Ashley from C&N in Brisbane (next week). Cost $395 for 2hrs, pay in advance please! Hmmm haven't paid yet and getting cold feet about this one.

Any thoughts.

 

[Francesco]

I hope I do not add to your confusion.

If I were you unless you are in a number of special situations requiring and justifying a particular trust, go with the simple structure ie buy in personal names. What that situation is needs to be identified. It will be profiled by future relationships, lifestyles, income streams and magnitudes, geographic locations and tax regimes, etc.

If the incomes of both partners differ greatly there may be advantages in buying as tenants in common instead of in joint names so the greater earner gets more tax refunds from proportionately more of the negative gearing of the IP (if any). The downside is the higher earner will get proportionately more CGT when the IP is sold. However, depending on your IP strategy, eg if it is a BH strategy, CGT is minimised.

Cost of professional help can be steep and you may like to read more books on the subject instead and be more specific in your need of the professional.

 

[BayView]

Hi, first post here, so go easy on me OK?

Just finished reading the Chan & Naylor books which have sparked my interest in investing in residential property.

Done loads of reading on the 'net about structures, financial planning, etc etc and starting to do my head in frankly.

Hubby and I are only interested in residential property (that's what we're comfortable with at the mo) and would like to structure something to protect our assets and pass them on to our kids.

But WHO in the world do we approach about setting this all up?

Chan & Naylor website shows costs and they seem rather steep, but you experts may know differently.

Do we approach Solicitors/Lawyers; Accountants or Fin Planners?
We do not want to purchase anybody's products but simply buy real estate. We have plenty of equity in our PPOR to jump right in.

But where do we go from here.............we're in inner Brisbane northside if that helps any.

Cheers.

Something to think about here:

unless you can gain a distinct tax advantage through purchasing via a trust, and if you are in a decent income bracket paying a good wad of PAYE tax, it is probably better if you start off buying in your own names, or in one name.

Trusts are ok - we have not bought (IP's) through ours ever (only the business purchases).

Having the right loan structures and the correct insurances to cover you will probably be adequate at this point.

Of course, at this point I will add all the usual lame disclaimer things; consult your accountant, solicitor, don't sue me, this is not advice, yadda, yadda, yadda, blah, blah, blah, vomit, spew..

Why do we have to add this cr@p? I know; because no-one wants to take any responsibility for their lame lives these days...sorry; I digress.

 

[HiEquity]

Why do we have to add this cr@p? I know; because no-one wants to take any responsibility for their lame lives these days...sorry; I digress.

You don't. It would be a good defence in court that someone taking financial advice off an anonymous, unpaid stranger on an internet forum is not acting reasonably...

However, if you are actually a financial adviser / broker etc, identify yourself as such and post opinions on such relevant matters on an internet forum, then a general disclaimer that free advice does not actually constitute advice would be a pretty sensible thing to do...

Just to be perfectly clear about the blindingly obvious!

 

[lizzie]

we are in the process of unwinding all our trusts ... the disadvantages far outweighed any advantage of such, and in the long run have cost us dearly.

disadvantages of a discretionary trust are:

high annual costs to maintain (acct, asic etc)
unable to claim depreciation of negative gearing against other income
no land tax threshold in most states

disadvantages of a hdt are:

high annual costs
no land tax threshold in most states
banks reluctant to lend due to ato indecision
no real asset protection

i would buy in personal names - however - only buy each property in one name (not joint) because of the land tax thresholds. eg, if you buy a $300k property in joint names, then you both have $300k put against your threshold - it is not divided by half. it means you can both buy a $300k property in individual names with the same land tax implications.

problem is - which name? we strike that problem every purchase and often get it "wrong" as our requirements from a particular property change over time.

 

[Piston Broke]

The situation is basically you get either tax benefits of asset protection.
If you think your getting both, because the guy in the suit said so, your kidding yourself.

no real asset protection

I disagree.
I will though state I do agree that the way those people setting them up promising neg gearing etc does'nt give much "real asset protection".

Trusts are ok - we have not bought (IP's) through ours ever (only the business purchases).

The way I'm seeing things is that directors are being held more & more personally responsible for what goes on in their business.
Suppliers all want personal guarantees these days, and any negligence will also result in personal liability.
This is not all that bad, the real issue I have is that whatever happens the stance against the biz seems to always be "guilty till proven innocent".
And you could even end up personally responsible for what someone else does.

I been posting for years:
Asset protection is expensive do your sums carefully.

 

[brrmm]

Thx to everyone for your opinions !!

Our circumstances are this:
Hubby - Professional (on PAYE for employer) in highest tax bracket
Me - Unprofessional at everything!....no really- Stay At Home Mother. No wages (damn!)
We - 2 kids 10 & 12yrs
No debts
PPOR nil mortgage worth approx $1.2m

Aim: To acquire maybe 3 IPs with a view to (hopefully) creating a (small ?) income stream eventually, but initially -ve gear.

In our late 40's (where did those years go??) last time I looked we were in our late 20's???


So I'm still reading up, investigating and taking on board all your advice. Still not sure if a trust is for us or not.