the 999th trust question, my situation

Don't want to hijack the other post.
Like 99% of the people, I am totally confused by this trust thing. Set up a HDT couple of years ago via a Melbourne accountant frequented this forum, thinking of getting rid of it because of the b.s. (ATO, hard to get finance (just told by a mb now it's almost impossible), land tax, cost etc etc). The most unbiased and sincere advices are from my fellow SSers (would like to know the facts before seeing the accountant/lawyer) :
1. thinking of setting up couple of businesses using a family trust, does that mean the assets are protected inside or outside the family trust. If anyone sue can they only sue the business family trust and not assets in my wife's personal name ?
2. buy couple of IPs in my wife's name, and she is seperated from my business, can anyone go after her IPs ?
 
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thinking of setting up couple of businesses using a family trust, does that mean the assets are protected inside or outside the family trust. If anyone sue can they only sue the business family trust and not assets in my wife's personal name ?
With regard to the business's liabilities, yes, but assets in your wife's name are vulnerable to any personal liability she may attract, eg as a landlord, and as a driver/motor vehicle owner. (These are the two most litigious activities most people engage in.)
bornfree said:
buy couple of IPs in my wife's name, and she is seperated from my business, can anyone go after her IPs
Yes, as per above. Most of your personal liabilities are covered by public liability and motor vehicle insurance; it really just depends on your risk tolerance. For most people, holding IPs in the names of individuals is acceptable from an asset protection perspective.

In our case, our IPs are in Trusts because we want to be able to distribute profits (from future positive cashflow, and any ultimate capital gain) for optimal tax effectiveness. If you have IPs in personal names, you lose any discretion for how these profits are distributed.
 
hi bornfree
couple of things
first what is a trust
understand what one is and you will then understand which one and why you would want to use that entity.
trust are not that hard to understand.
they are basically like a company but instead of shares in a company they have units they are basically the same thing( a few people will say they are very different but to get your head around them they are the same)
now depending who you wnat to distribute the items in the trust depends on the type of trust.
just like a company gives money to its share holders the idea is the same.
the difference comes when you want to give different amounts to different people with a company you issue more shares with a trust you structure it so its done internally now that may not be what you wnat so the trust is then setup differently.
why are they so different
because they are used for very different reasons I have one trust company that has a very fancy trust and its 25k to setup its the rolls royce of trusts for me and is very effective in what its designed to do.
for me its like saying I want to drive but am not sure how to and which car should I buy
with a trust understand the basic of what they are and do and then decide which one is best for your project.
for me there is not alot of point in saying is a unit,decret,hybred,family bloodline,bare, the one to use
because the reason you use them changes and you ahve to have the flex to change it also.
and the tax, distrib or reason are very different.
they are very simple structures in there own right they can be used to create very complicated entities but they are the building blocks of investing if you wish to build using them.
each company or silo that I have done is a company and trust structure. and are very different
hope this help I think first understand them then find out if you want to use them and which one
also get it designed for you
as the off the shelf are fine they just need modifying to what you want to do
 
[OK, this is my third attempt in three days to respond to this thread. The previous two times I've written a lengthy reply and then been logged out and lost it. Hopefully I've now learned to copy my reply to clipboard before posting. ;)]

By "in my name only", I assume you mean that you'll be the Trustee of the discretionary trust (DT), which puts you in control of the asset.

The tax advantage of a DT is that you can distribute profits however the Trustee sees fit, and this can differ each year. Usually, you'd distribute an amount up to the tax-free threshhold ($5K or whatever it is these days) to each of the kids, then distribute the rest to make Mum and Dad's income even, or at least in the same tax bracket, for maximum tax effectiveness.

So if, outside the DT, Mum has $10K Centrelink income, Dad has $70K salary, and there are 2 kids with no income, if the DT makes $80K profit, you'd give the kids $5K each (tax-free), then the remaining $70K would go $65K to Mum, and $5K to Dad, so each parent has $75K taxable income. The money distributed to the kids doesn't have to be actually given to them; it may be paid back to Mum and Dad to cover the cost of keeping them. ;)

The main negative of a DT is that it can't distribute losses, so you can't negatively gear. So if the property makes a $10K taxable loss, if the property were in your own name, Dad could reduce his taxable income from $70K to $60K, but with the property in the DT, the loss has to be held to offset against future profits. So if the DT makes a $10K loss this year, Dad still has to pay tax on the full $70K. But next year, if the Trust makes a $20K profit, it only has $10K profit to distribute ($20K, less the $10K loss from last year). The losses can accumulate over multiple years until the asset finally makes a profit. (I know this scenario well, unfortunately. :rolleyes: I won't be paying income tax on my property for a loooong time!)

You're not paying any more tax overall, but if you have a negatively geared property in a DT, you are bringing your tax liability forward. You can lose out if the Trust never generates a profit, but you should be able to avoid this. Even if you sell a dud property before it ever makes a profit, you can put other assets - another property, shares, a business, etc - into the same DT and offset the accumulated losses against future profits from those investments.
 
thanks grossreal & ozperp. Ozperp your example with the numbers is excellent for someone to get a grasp of the concept, much appreciated.
 
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