Structure for a surgeon

[drfuzzy]

My colleague asked my advice as he has purchased his first property, an investment rental property. The house is in a rural area in Tassie and is relatively low value (under $200k). After a small renovation it will be positively geared with a yield of around 9% gross.

The property was hotly contested and sold quickly on day 1, subject to finance with a 14 day period to organise.

Accountant has recommended he set up a FAMILY TRUST with a corporate trustee for assets protection. I have suggested it will be impossible to do this within 14 days, and to then obtain the finance. Would need 30 days plus.

He is in a high risk profession for litigation (young surgeon starting out). However I think he should purchase this in his own name and save the cost of the family trust structure at this time and wait until he owns more significant real estate. The cost of the structure to protect a $200k house with a loan at 90% LVR seems to be overkill in my eyes. I figure he will need to pay $1k-$2k/year to maintain the trust and corporate trustee to protect around $20k of equity.

Would you buy in your own name or go down the Family Trust path?

He is about to marry with no kids and has a wife on lower income and parents he could distribute to from the trust.

 

[Peter_Tersteeg]

For a surgeon I'd suggest that asset protection is paramount. In this regard they probably carry significant litigation risk.

A family trust is the way to go, but you're correct in that it's going to be difficult to get this set up within 14 days. That said, your friend would be able to get a loan approved subject to the trust being vetted within that time frame. This would mean that the only outstanding item for the loan approval would be finalising the trust paperwork, which is generally time consuming, but not a big deal and unlikely to be a show stopper for the loan itself.

Just make sure the settlement period is at least 45 days.


As an alternative, purchasing the property purely in his wife's name does give some asset protection, but it's not as good.

 

[Terry_w]

He is going to marry and also has a wife!

Asset protection is not simply setting u p a trust through an accountant. He needs legal advice, what is the structure of the discretionary trust? What type of trust is it, who is the appointor, is the trustee a beneficiary terms of the deed. What structure for the trustee - director, shareholders, constitution.

If he has already signed contraccts then he has weakened his asset protetion already. Where is the deposit coming from, what structure has he planned for that?

What are the land tax consequensse? Trusts get no threshold in Tasmania.

Since there will be little or no growth for the coming decades what are the risks of buying it in his own name. Could he buy in own name and borrow from a disccretionary trust for the deposit with the trust taking a mortgage? That is probably a cheaper and easier way to gain good asset protection for this one.

 

[Scott No Mates]

Great tangent Terry. Too late to set up the trust to purchase but not for a new trust to become mortgagee.

 

[Paul@PFI]

If he is about to marry then a far more practical solution is to NOT acquire any interest in this property. His fiance should be the owner on title subject to legal advice to explains the limitations to this approach.

He would be co-borrower but not own a single thing. Surgeons and med specialists should never own a thing UNLESS otherwise given sound legal advice to own something

 

[en_]

Apologize for hijacking this thread with my own question.

Wife is a surgeon. Currently PPOR (joint names) and 2 x IP (wife name).

Can I get accountant recommendations from fellow SS'ers?

Currently just use the local HR Block accountant for tax returns, have tried asking about trusts, but they weren't that keen to discuss

We are based in SouthWest/ West Sydney area.

From my basic understanding and the below, it looks like what's done is done with our current holdings, but should get a trust up for our future purchases.

Thanks!

 

[Paul@PFI]

For medical persons trusts and SMSFs often become inevitable as well as strategies to address tax. I'm across all this and a SSer and accountant. Based in NW Sydney. My direct mail below.

 

[sanj]

Apologize for hijacking this thread with my own question.

Wife is a surgeon. Currently PPOR (joint names) and 2 x IP (wife name).

Can I get accountant recommendations from fellow SS'ers?

Currently just use the local HR Block accountant for tax returns, have tried asking about trusts, but they weren't that keen to discuss

We are based in SouthWest/ West Sydney area.

From my basic understanding and the below, it looks like what's done is done with our current holdings, but should get a trust up for our future purchases.

Thanks!

Your wife is in a highly paid but risky job, pls start getting better advice than from the local bookkeeper!

 

[en_]

Your wife is in a highly paid but risky job, pls start getting better advice than from the local bookkeeper!

Hi Sanj,
Any recommendations?

I have been reading threads within the forums and after reading the Chris Batten vs Chan & Naylor, do feel overwhelmed!

 

[Terry_w]

Wife is a surgeon. Currently PPOR (joint names) and 2 x IP (wife name).

Currently just use the local HR Block accountant for tax returns, have tried asking about trusts, but they weren't that keen to discuss

Gee!

Like asking an acupuncturist about heart surgery.

Check out Paul above. He is an accountant that knows a lot about trusts.

 

[willair]

https://www.youtube.com/watch?v=notKtAgfwDA..

 

[sanj]

Hi Sanj,
Any recommendations?

I have been reading threads within the forums and after reading the Chris Batten vs Chan & Naylor, do feel overwhelmed!

Paul and Terry are good options, I'd start with them. Paul is an accountant comfortable with trusts and Terry specializes in structures. Go see them, pay for some of their time, ask a whole bunch of questions and then you have a better chance of making an informed decision

 

[Terry_w]

If he is about to marry then a far more practical solution is to NOT acquire any interest in this property. His fiance should be the owner on title subject to legal advice to explains the limitations to this approach.

He would be co-borrower but not own a single thing. Surgeons and med specialists should never own a thing UNLESS otherwise given sound legal advice to own something

It all depends. There is also the concept of resulting trust, especially if he is a co-borrower. Upon bankruptcy a trustee in bankruptcy would argue the wife is acting as trustee for him, the non owner. 50% at least would be up for grabs.

 

[en_]

For medical persons trusts and SMSFs often become inevitable as well as strategies to address tax. I'm across all this and a SSer and accountant. Based in NW Sydney. My direct mail below.

Hi Paul, will send you a PM

 

[en_]

Gee!

Like asking an acupuncturist about heart surgery.

Check out Paul above. He is an accountant that knows a lot about trusts.

Hi Terry,
Will speak with Paul re trusts.

Sanj made a point about structures. What's the difference between the two?

Trust would be how we procure/ protect our assets. What would structure cover?

 

[Terry_w]

Hi Terry,
Will speak with Paul re trusts.

Sanj made a point about structures. What's the difference between the two?

Trust would be how we procure/ protect our assets. What would structure cover?

Different between which 2?

A trust isn't a legal entity but a relationship between thet trustee and the beneficiaries. For convenience it is called a 'structure'.

'Structure' covers legal ownership strategies, i.e. whose name to be on title, but also things like:
- funding the deposit - where does this come from and how. e.g. should Spouse A own with Spouse B lending the deposit.
- Structuring bank finance - type of loan
- Structuring the private finance - terms of loan agreement with Spouse or trust
- Structuring of security - should Spouse B obtain security for their loan. What should this security be?
- legal issues of asset protection - would Spouse B take priority over other creditors if Spouse A went down
- Structure of the trust. Who should be trustee, who should be appointor, back up appointors. terms of the trust deed. beneficiaries of the trust. types of beneficiaries
- structure of any trustee company, who should be director, shareholder and any special constitution terms.
- estate planning - what happens if A or B dies, goes insane, is in a coma. What is the effect on loans with banks, private loans. Effects on trusts and companies set up etc
- Bankruptcy effects on everything if A or B were to go bankrupt.

etc
etc

 

[en_]

Thanks Terry, that's helpful!

What is the difference between the type of services offered by Paul and yourself?

Looking at credentials, Paul's an accountant and you're a lawyer, but both can provide advice re trust and structures?

 

[Terry_w]

Thanks Terry, that's helpful!

What is the difference between the type of services offered by Paul and yourself?

Looking at credentials, Paul's an accountant and you're a lawyer, but both can provide advice re trust and structures?

I am a lawyer And can give legal advice as well as tax advice on trusts. I also hold a credit licence and can give credit advice on the finance side. I also own property tax solutions pty ltd which is a licenced tax agent and can losge tax returns.

Trusts are legal relationships and involve many different branches of law.

 

[Rob G.]

I would suggest if there is not much prospect of a capital gain to just wear it and spend the saved money on a good professional indemnity policy.

However, I cannot suggest that because it is financial and legal advice and requires referral in a round robin fashion to a range of professionals that will soak up enough fees to guarantee that the investment will make a loss.

What should really happen is for them to formulate a lifetime investment and estate plan that will guide all future decisions. Terry is one of the rare people that has the broad range of training and experience as a "one stop shop" from what I can gather.

 

[Paul@PFI]

I would suggest if there is not much prospect of a capital gain to just wear it and spend the saved money on a good professional indemnity policy.

However, I cannot suggest that because it is financial and legal advice and requires referral in a round robin fashion to a range of professionals that will soak up enough fees to guarantee that the investment will make a loss.

What should really happen is for them to formulate a lifetime investment and estate plan that will guide all future decisions. Terry is one of the rare people that has the broad range of training and experience as a "one stop shop" from what I can gather.

Good points Rob.
There are firms that focus on medical professionals and gouge fees, products etc. Stay away from anyone who offers a investment that is tax driven by making losses !!