SMSF Bare Trustee - using the accountant's corporate trustee?

[mgl1100]

I realise that to purchase a property using borrowed funds, we need to set up a Bare Trust, with a bare (corporate) trustee holding the legal title to the property.

I also understand that we can use the same corporate trustee for subsequent Bare Trusts (with a separate Bare Trust for each property purchased).

However, has anyone ever come across an accountant offering its own corporate trustee to be the bare trustee for its clients' SMSF purchases? So that the accountant's clients don't each have to suffer the extra expense of setting up their own corporate trustees? And can just use the accountant's corporate trustee for the purchase?

I personally believe that the one-off cost of setting up a bare corporate trustee is a lot easier than having the SMSF property held in the accountant's corporate trustee's name for however long until the debt is repaid (or the property is sold - in which case the accountant's corporate trustee would need to be the vendor).

Would be interested to hear everyone's thoughts on this - and whether anyone has actually come across this type of arrangement before.

 

[see_change]

I realise that to purchase a property using borrowed funds, we need to set up a Bare Trust, with a bare (corporate) trustee holding the legal title to the property.

I also understand that we can use the same corporate trustee for subsequent Bare Trusts (with a separate Bare Trust for each property purchased).

However, has anyone ever come across an accountant offering its own corporate trustee to be the bare trustee for its clients' SMSF purchases? So that the accountant's clients don't each have to suffer the extra expense of setting up their own corporate trustees? And can just use the accountant's corporate trustee for the purchase?

I personally believe that the one-off cost of setting up a bare corporate trustee is a lot easier than having the SMSF property held in the accountant's corporate trustee's name for however long until the debt is repaid (or the property is sold - in which case the accountant's corporate trustee would need to be the vendor).

Would be interested to hear everyone's thoughts on this - and whether anyone has actually come across this type of arrangement before.

Haven't heard it . Would be vary wary about using someone who suggested it. My recollection is that the name on the title is that of the corporate trustee...... What happens if you move accountants

We have been advise to use a seperate company for each bare trust . Cost for co+ trust $1300.

Cliff

 

[Ausprop]

We have been advise to use a seperate company for each bare trust . Cost for co+ trust $1300.

Cliff

Was the same person selling companies?

 

[see_change]

Was the same person selling companies?

No .

Cliff

 

[Ausprop]

No .

Cliff

thanks, just wanted to clarify the impartiality of it

 

[Greg Einfeld]

caveat emptor

Be very careful. As sea change suggested - what happens if you change accountants?

Worse still - since the title is held in the name of the trustee company - what is to stop your accountant selling the property from under your nose? After all, he/she is the director of the company.

Or what happens if the trustee company becomes insolvent and is wound up? You would have to prove to the court that your bare trust owned the property on behalf of your SMSF. This can be time consuming. The asset could be frozen in the meantime.

You will need a separate bare trust for each property, however you can use the same trustee company each time if you own multiple properties.

 

[coastymike]

What happens if the accountant passes away and the shares are held by the accountant and as part of his will his shares are passed to his son who is dubious ? Shareholder then votes to have son appointed as director and dubious son now controls your bare trust and does things in breach of the sis act. Your smsf now becomes non complying ?

worse dubious son lives in romania and is not an australian citizen and refuses to sign any documents unless a 'fee' of 100k is paid to sign said documenta. Could end up a real mess.

 

[Rolf Latham]

dumbest thing I have heard of for a loooooooooong time

ta

rolf

 

[Terry_w]

What happens with the financing - would the lender want a personal guarantee from the directors of the Bare Trust?

What sort of savings are we looking at and is it worth the effort?

 

[see_change]

dumbest thing I have heard of for a loooooooooong time

ta

rolf

Rolf

I was being polite , though as I said , if my accountant suggested that , I'd be looking at a different accountant.

In the situation where you are the director of the company and it' the trustee of several bare trusts , you know what the company is doing , but when you don't control it , what other activities is it doing.

We have fun with the name of our bare trusts . First one was call the Yogi Bare trust , but Vicki has balked at the Bo Bo bare trust .

Cliff

Cliff

 

[Paul@PFI]

s67A

An accountant offerring his "own trustee" company for a bare trust?

Hmm smells wrong. Lets break it down. Need to look at the deed for the bare trust. I will argue it will probably refer to that entity. The accountanst company will be the legal owner of the property on title. One day, when the loan is repaid your SMSF will need to call for the title to be transferred. And like Mike (Coastymike) says what heappens when he is no longer around? Or the company gets wound up or nobody will sign the transfer or ???? You arent in control are you!

I see a stamp duty issue here too. Be very surprised if OSR in any state will allow transfer free of duty if the trustees of the SMSF are different to that of the bare trust. Some states have barely allowed a s67A transfer to be exempt. Sure this works? They might eventually give in after review of the 20 year old records if you dont lose them. Got a written ruling its all Ok for stamp duty ??

There also may be a SIS concern but I dont think its that alarming. Is the accountant trustee co merely a custodian. SIS contains rules about custodian and I believe they apply equally to a SMSF. If I had this land on desk as a SMSF auditor I might think of reporting it to ATO. Then tyey can choose if it works. Is his mate the auditor ? Or does he do that too?

Then there is the AFSL issue. A financial product and his co is owned of your prop. Insured with PI cover for this transaction and arrangement? Accountant PI wont cover it.

Question is "why". Saving money ?? he saves or you? So does the accountant hold security over your compliance work ?? I would argue its an ethical and professional concern. Ransom.

CBA "had" a smsf loan product like this. They owned title. I dont trust CBA with my property why would I try a local accountant?

So if that all wrong what else is wrong ?? I'm assuming he showed you the OTHER TWO ways to do a SMSF property acquisition / borrowing that is cheaper?? And he does have an AFSL to initiate such a complex financial arrangement, doesnt he ? If not, I'm happy to walk you through the alternatives. May save you $$$. Call.

 

[Rolf Latham]

Rolf

I was being polite ,

Cliff

Cliff

I used tobe with this sort of stuff,but found that some didnt get the message : ), so I now use the sledge hammer and assume nothing

ta
rolf

 

[Aaron_C]

Pretty dumb idea.....where do I even begin.

 

[see_change]

I used tobe with this sort of stuff,but found that some didnt get the message : ), so I know use the sledge hammer and assume nothing

ta
rolf

Rolf

Sometime even a sledge hammer doesn't work , especially if its a brick wall .

Cliff

 

[Paul@PFI]

SMSF Borrowing

Who said a SMSF loan in compliance with s67A has to be held on a bare trust ??

Before many of you pound the keyboard hurling polite forum abuse I will ask you to re-read s67A and find where this legislation refers to a "bare trust". In fact it doesnt prescribe the manner of trust.

Don't worry you arent alone if you are surprised. The ATO mention "bare trust" in some of their rulings etc too. And nearly every adviser and media commentator. Even Treasury !! So I'm wondering how good the ruling system is if a different type of trust may be permitted but the rulings dont contemplate this. And the Regulator of SMSFs doesnt get it either. Or maybe they do but they are being polite not wanting to sugegst everyone else has it wrong.

Doesn't the law only refer to a "beneficial interest" ?? I'm not suggesting a discretionary trust. But could the trust be a "fixed" trust or a trust where an absolute entitlement occurs for the "RSF Trustee" (The fund trustee).

I'm suggesting most accountants, LAWYERS and financial planners have lept into a belief that the trust must be a bare trust. The banks have followed their advice. Maybe even ATO....

Who the hell started this "bare trust" view ? I would love to read a reply from a lawyer advising a major bank.

 

[Aaron_C]

Since many SMSFs borrow money and must comply with the lender's strict requirements (i.e. having a 'bare' trust) - this is why it is people's modus operandi.

 

[see_change]

Paul

Is there a reason why not to have it in a bare trust , if that's everybody's expectation?

It painfull enough getting SMSF loans though as is , so i dont see any benifit in starting to questioning the established practice .

Cliff

 

[MikeF]

Bare Trusts

Who said a SMSF loan in compliance with s67A has to be held on a bare trust ??

Before many of you pound the keyboard hurling polite forum abuse I will ask you to re-read s67A and find where this legislation refers to a "bare trust". In fact it doesnt prescribe the manner of trust.

Don't worry you arent alone if you are surprised. The ATO mention "bare trust" in some of their rulings etc too. And nearly every adviser and media commentator. Even Treasury !! So I'm wondering how good the ruling system is if a different type of trust may be permitted but the rulings dont contemplate this. And the Regulator of SMSFs doesnt get it either. Or maybe they do but they are being polite not wanting to sugegst everyone else has it wrong.

Doesn't the law only refer to a "beneficial interest" ?? I'm not suggesting a discretionary trust. But could the trust be a "fixed" trust or a trust where an absolute entitlement occurs for the "RSF Trustee" (The fund trustee).

I'm suggesting most accountants, LAWYERS and financial planners have lept into a belief that the trust must be a bare trust. The banks have followed their advice. Maybe even ATO....

Who the hell started this "bare trust" view ? I would love to read a reply from a lawyer advising a major bank.

Paul is spot as the legislation only states that the asset is “held on trust so that the Fund trustee acquires a beneficial interest in the original asset or the replacement”.

My understanding of the "on trust" thing is that the person/entity (custodian) that holds an asset on trust is considered to be a ‘bare trustee’ as this is the simplest form of trust.

The reason that lenders require that a company act as the custodian is to avoid the complication that arises upon the death of an individual trustee.

Also a ‘bare trust’ relationship is said to exist where the trustee has no active duties and the beneficiary is absolutely entitled to the trust property at some time in the future.

Other reasons I believe that a ‘bare trust’ arrangement is used is due to other considerations such as GST, stamp duty as well as land tax in some states.

 

[Rob G.]

Who the hell started this "bare trust" view ? I would love to read a reply from a lawyer advising a major bank.

Probably Treasury assumed absolute entitlement via a bare trust.

After all ... who wants to pay CGT multiple times on the same property ?

Cheers,

Rob

 

[Paul@PFI]

I rarely recommend a bank SMSF loan.There are several ways to effect the same thing which are just as acceptable to ATO and they are just simpler and cheaper. And far far more flexible. The Limited Recourse loan is a lender of last resort facility in my book. To me its like funding a IP on a credit card maxed to the hilt. Its way too expensive. Just paying the banks lawyers to vet your deed and other documents costs a bomb.

About the only time when a limited recourse loan is the sole choice is when the members can least afford it. These deals tend to be very highly geared by people with F.A. equity other than the super fund going 100% into one property. Most I have seen have little equity / cashflow. Many who see us I question why advisers tell them the asset can be a pension asset and obtain a 0% CGT rate. There is way too much sus advice in this area by people trying too hard to sell properties.

My question remains - Why do banks expect a "bare trust?". Its not actually what law says. Their legal advisers arent all the the same. Gadens do a number of them sure. Imagine if your bank told you an account for a deceased person must be held in bare trust for the beneficiaries.

Paul

Is there a reason why not to have it in a bare trust , if that's everybody's expectation?

It painfull enough getting SMSF loans though as is , so i dont see any benifit in starting to questioning the established practice .

Cliff