Should I put in a Trust or not

[DaleGG]

Hi

I would be curious to know the author & title of that book.....and, whether the author is actually qualified to comment on such issues or is merely voicing their own ignorance and passing it off as fact....

I can give you a copy of a private ruling provided by the tax office to NickM that goes into the legal argument re HDT's. Furthermore, they agree that there is nothing wrong with the concept and that the tax benefits are perfectly OK to claim.

Dale

Hi Michael
The author didn't say they were illegal. I guess just intimating that they may be open to challenge by the ATO in the future and possibly be reigned in or legislated against. ( as most politicians probably have at least one of these structures I somehow doubt it)
The author does beleive strongly in positive cash flow property and this may be the cause of their particular view. I must say it has made me think before leaping into trusts. Not from a .....are they legal point of view? but are they necessary?

PP

 

[NigelW]

I’m reading a book by a well known author and investor who argues that trusts are not necessary.

A lot of the above is not word for word as this post is already a long one and I tried to summarize where possible without changing the vibe

Cheers
PP

Was it Margaret Lomas' latest book? it reminds me of the drivel I read in it about structuring...

 

[PurpleP]

Was it Margaret Lomas' latest book? it reminds me of the drivel I read in it about structuring...

Yes

With all due respect she doesn't come across as some one prone to mouthing off without some knowledge of the property industry.
As far as I know she is a qualified financial planner entitled to her understandings.
I would appreciate if the Dales or Nicks of this forum could explain what is wrong with what she says about DTs. Granted there is not a lot of substance in what she says about HDTs.
But surely she hasn't written a whole chapter in her book that doesn't have least some substance to it??????????????????????????????

PP

 

[DaleGG]

Hi

I have not read the book and so I cannot really comment.

However, it never ceases to amaze me the number of people who make the HDT concept out as a bad thing simply because they do not understand it and wish to appear knowledgeable.....

Dale

Yes

Granted there is not a lot of substance in what she says about HDTs.
But surely she hasn't written a whole chapter in her book that doesn't have least some substance to it??????????????????????????????

PP

 

[PurpleP]

I have not read the book and so I cannot really comment.

Hi Dale

I undersatnd if you don't want to respond not having read the book, however i have outlined in my post above what was said in the book

cheers
PP

 

[kaf]

Hiya Michael

Absolutely right. The one trust can be used for both activities and this provides flexibility and leaves options open down the track if oy decide you need them.

Dale

Hi Dale

That's interesting - I was under the impression that you would want your shares in a share-only trust because it makes your asset protection for the shares pretty much bullet-proof?

For example if a tenant of a property within a trust sues you everything within that trust is ‘up for grabs’ but the loss would be quarantined within the trust (usually). As there is no such risk with shares I thought I understood that you’d want a share-only trust and keep it separate from property. Or did I get this wrong completely? Tax-wise it wouldn't make a difference I assume.

Cheers

kaf

 

[DaleGG]

Hi

There has to be a balance between practical asset protection and keeping accounting and other compliance costs down.

In a perfect world, yes, a separate trust for each asset is ideal. In the real world, the costs could quickly outweigh benefits....

Have fun

Dale

Hi Dale

That's interesting - I was under the impression that you would want your shares in a share-only trust because it makes your asset protection for the shares pretty much bullet-proof?

For example if a tenant of a property within a trust sues you everything within that trust is ‘up for grabs’ but the loss would be quarantined within the trust (usually). As there is no such risk with shares I thought I understood that you’d want a share-only trust and keep it separate from property. Or did I get this wrong completely? Tax-wise it wouldn't make a difference I assume.

Cheers

kaf

 

[DaleGG]

Hi

Thank you. I ahve already told you though that the advice in the book is incorrect and clearly ignorant.

There is nothing more that I can add that would be helpful to this thread....

A trust is not for everyone. But, it is the lies and rubbish sprouted by people that upsets me.

Dale

Hi Dale

I undersatnd if you don't want to respond not having read the book, however i have outlined in my post above what was said in the book

cheers
PP

 

[ggumpshots]

I understand the broad picture of Hybrid discretioary trusts but not the finer details.
With a Hybrid Discretioary trust , HDT,set up for use by a a family for example, the Higher bread winner owns the units.
eg man works in the coal mine... wife cuts wheat and makes bread at home.

Next asume roles become reversed.At this point does the man sell/ give back ,the units to the trust and the wife now buys/ is given, the units of the HDT.

She can now use the interest deducuctions against the trust income she is entitled to.

Are there any costs with units exchanging hands. CGT/ stamp duty/solicitors fees etc... ? This is the part I am unclear on. !!!!!!
Have I got it right???????????????????

No clear answer has been forth coming to the above.

Can the units be given to the unit holder? Can all units be sold to the unit holder for a nominal value , eg a $1
There are no costs associated with a HDT unless one uses an acountant

 

[Whatever]

No clear answer has been forth coming to the above.

Can the units be given to the unit holder? Can all units be sold to the unit holder for a nominal value , eg a $1
There are no costs associated with a HDT unless one uses an acountant

Probably because the answers are complex and depend on individual circumstances, which means getting paid for advice from your accountant.

I will never forget sitting in on meetings my Father had with his accountant "" Jack - be happy - I'd love to be telling you,your tax bill is $1million"

regards,

Paul

 

[coastymike]

I notice that no mention is made of ESTATE AND RETIREMENT planning. One of the most important things I mention to clients.

Let's say you hold an investment property in one trust and a second investment property in another trust. You have been happily holding these properties for many years and you would now like to transfer one of these properties to your daughter to help her gain a financial edge.

If the property is held in your own name then you will be liable for stamp duty and CGT on the transfer. What if the property was held in a trust and you merely changed the trustee of the trust to your daughter or a company controlled by your daughter ?

In order to be able to answer questions such as the one posed by the trustee in this case, the Australian Taxation Office (ATO) has developed, Creation of a new trust – Statement of Principles (the statement) in order to deal with this issue. The statement outlines when the Commissioner will treat changes as giving rise to a new trust estate.

The Statement does consider the change in a trustee at paragraph 5.4.

5.4 CHANGES OF TRUSTEE

A change of trustee does not in itself result in a termination of the trust. If there is merely a change of trustee, the trust property with the accompanying equitable duties are assumed by the new trustee and the trust estate continues unchanged. On the other hand, a change in the trustee or control of the trustee may be an element in arrangements which in their entirety amount to the creation of a new trust.

So if carefuly structured then the asset may be moved along to the daughter without the significant stamp duty and CGT liabilities to the parents. Sounds like good tax planning to me. Pity a financial planner isn't considering estate and retirement planning when discussing structuring.

 

[goddessk]

Let's assume that you are buying IP's, have no kids, never plan to get married or have kids to pass them onto, put them in the lower income earners name, give them to nieces and nephews or any other scenario that has been discussed here. There is just you, and that's it, forever. Plus you have your landlords insurance that covers liability.

And I know people will say that these things may happen - you might have kids, you might get married etc. For the sake of this post, let's just assume that the above scenario's will not occur.

Is there any benefit in a trust of any description if this is the case and why?

 

[coastymike]

Goddess,

Planning for unforseen future events in my opinion differentiates the successful individuals from those who never achieve or achieve very little success. I am not merely referring to financial success but success in all areas of life.

Many people have trauma and income protection insurance (I am one of them) and hopefully will never have to claim on these policies. But does the cost outweigh the benefit. Well it's a hard question to answer until the event occurs.

Imagine you owned a candle business prior to the introduction of electricity and just thought that electricity would never take off. Or as the head of IBM once said "computers will never be available to individuals in their homes". Maybe those things won't happen. Maybe they will.

Asset protection (or some refer to it as wealth preservation) is always considered as one of the reasons for the use of trusts. Well you might never be sued so was it worth it or not.

Maybe we will all die tomorrow in a dirty bomb attack on Sydney. Does that mean we shouldn't have enough food in the cupboards for the coming week. Ohh if we could only see the future. Alas we just have to prepare for it.

 

[sydneycider]

I'm going through the same questions now - should I set one up or just do with out it.

In a similar situation as Godessk, no kids, family members etc to distribute the income too, except myself - so I can't see any benefit there (but Coastymike is correct and things could change).

Just wondering if anyone has set one up and later regretted that decision ?
I guess it would be very difficult/costly to undo once you have assets under the trust.

I've bought Dales book and have an appointment with Nick in a few weeks, so perhaps things will be clearer then.

The major downside I see is the complexity of your affairs, possible issues with finance ? and the rather large increase in accountants fees every year.

 

[emw]

costs and numbers?

I'd love to get some very rough ballpark costs for the following if possible:

1 - HDT and company as trustee

2 - Chris Batten's double trust structure which allows properties to migrate into a SMSF at some stage

Please post a rough idea for both startup costs & annual costs.

Also, roughly how many properties can go into a single trust? I realise that depends on the risk, so let's presume one's not especially likely to be sued.

Someone suggested up to a $m in property into each trust. How does that sound? One per trust seems excessive, but how many could one 'cram' into each trust before it gets 'too' risky?

I'm just trying to get an idea of costs involved, and how they relate to the number of properties bought. I intend to collect perhaps a dozen buy and (renovate and) hold properties gradually.

I've searched the threads & found a few tit bits on costs, but it would be great if a few people in the know could post some clear rough price ranges here.

Thanks in advance!

Ed

p.s. I'm thinking that even if it costs a grand or two for setup and maybe a grand annually to feed, that's a drop in the ocean when compared to what they're worth now, what they're gonna be worth in a decade or two, and the potential tax savings due to redistributing rent around.

 

[coastymike]

Emu,

Some rough costs. This may vary between accountants. I use Batten's deeds and so do Nick and Dale so costs may be similar

Setup Fees

Initial Consultation $ 300.00
Unit Trust Deed $1,200.00
Hybrid Discretionary Trust Deed $1,200.00
Corporate Trustee for UT $1,500.00 (includes ASIC $800.00 fee)
Trust Deed Stamping $200.00 for each deed and $2.00 for copies

These costs include application for ABN, GST, Tax File Numbers etc and issuing of special income units.

Ongoing Fees

ASIC Fees for company $212.00
Accounting Fees minimum $1,000.00
(varies depending on amount in trust)

 

[Merovingian]

1 - HDT and company as trustee

Is a company that is used as a trustee for a trust, primarily for asset protection purposes? (I am thinking yes). Are there any other advantages of using a company over an individual?

Also, does this company have to trade? (I am guessing no, as the company is more of a stub for the trust to use, and money goes between the trust and its beneficiaries, not between the trust and the company).

Thanks.

 

[Terryw]

Emw

Have a look at http://www.chrisbatten.com.au/ under resources. Chris Batten charges $1100 for each trust, or $990 if a member. He charges $1320 for a company.

Another site to look at is www.lawcentral.com.au. Hybrids there are about $660 from memory, companies are $990 or so.

Not sure on the differences between the two deeds, or which is "better".

Regards

Terryw

 

[goddessk]

Goddess,

Planning for unforseen future events in my opinion differentiates the successful individuals from those who never achieve or achieve very little success. I am not merely referring to financial success but success in all areas of life.

Coastymike, thanks for your point of view however I asked the question for a reason. If anyone is interested in actually answering my question I would appreciate it.

 

[goddessk]

I'm going through the same questions now - should I set one up or just do with out it.

In a similar situation as Godessk, no kids, family members etc to distribute the income too, except myself - so I can't see any benefit there (but Coastymike is correct and things could change).

Hi sydneycider, just to clarify, I didn't indicate I was in this situation (as I do have a partner and family members to leave my assets to - no kids though and this will not change) however I was just curious as to whether a trust is of benefit if you chose not to leave your assets to anyone.