Trust or Don't Trust

[K_Raheja]

Hello All,
We are in the process of acquiring IP 2
we intend to buy few more in the next 5-6 years…
I was wondering is this the right time to think about trusts ? or keep buying in my own name…which was the default plan
.. until I went to a seminar which hammered ‘asset protection’ , and how litigious Australia is ..etc etc…

Would love to hear what others have done…thanks in advance …cheers

 

[Ausprop]

everyone has their own opinion. mine is, each asset (or 1 or 2) should be in separate trust and cashflowing as best as possible.

 

[geoffw]

A standard discretionary trust is not of much use while a property is negatively geared- losses must be quarantined within the trust, can can only be carried forward.

However they can be useful when a property is, or becomes, positive.

Our circumstances changed drastically with regard to income earning (I became the lower earning partner because of the business), and a previosuly negative property became positive. Then we had a business within a trust. It proved to be very effective with regard to tax distribution.

 

[K_Raheja]

Thanks for replies...

IP 1 is positive ( not my much but close to $1000 / year ) at the moment and will be more once i move to lower interest rates.

The plan is IP 2 will also be barely + or at least neutral.

Hmm...may need to talk to an accountant..any recommendations on who to talk to for these sort of advice ?

 

[Terry_w]

Hello All,
We are in the process of acquiring IP 2
we intend to buy few more in the next 5-6 years…
I was wondering is this the right time to think about trusts ? or keep buying in my own name…which was the default plan
.. until I went to a seminar which hammered ‘asset protection’ , and how litigious Australia is ..etc etc…

Would love to hear what others have done…thanks in advance …cheers

Don't believe everything you hear in seminars!

Financial considerations are only one aspect. Many others to consider and not enough info above to form an opinion either way.

 

[nhg]

As Terry is aware, my one of many regrets thus far is not using trusts much earlier on.

I have 3 properties at the moment which are heavily positively geared. I started almost 2 years ago and also followed the advice to purchase under my own name for negative gearing benefits... what negative gearing.

Also with house prices rising so rapidly atm, if I sell I will also be paying a larger tax. Also if I refinance, it is not so simple (from what I understand so far) to deposit the extra cash into a trust to purchase more property as it will mess with my tax deductions.

It would have been simpler if I had bit the bullet, purchased maybe one, max 2 properties under my own name and the rest under a trust.

 

[geoffw]

Also with house prices rising so rapidly atm, if I sell I will also be paying a larger tax.

This would depend on your individual circumstances. If you were single, or if your partner was earning a similar amount to you, there may not be much advantage to having had the property in a trust.

 

[Aaron_C]

Trusts.....thought about the fees of setting up / maintaining / paperwork?

 

[geoffw]

Trusts.....thought about the fees of setting up / maintaining / paperwork?

That's well worth investigating. Especially if a trust has a corporate trustee, which you would do with a higher risk profession- like a food business.

For me, it was well worth it- but partially due to circumstances which changed well after we decided to create the trust.

There is also a risk of legislation changing.

 

[Ausprop]

Trusts.....thought about the fees of setting up / maintaining / paperwork?

the trust itself is about $100, the paperwork needs to be done regardless of who owns it. shou dbe fairly straight forward tho I admit doing a dozen or so tax returns is a headache - not so bad if not doing monthly BAS

TBH by the time you get to 5 or so resi properties yo will be so over it and start going for decent commercial stuff... properties that pay their way (amazing stuff)

 

[sanj]

A standard discretionary trust is not of much use while a property is negatively geared- losses must be quarantined within the trust, can can only be carried forward.

.

Unless youre self employed of course and have the ability to flow dividends through to that trust to soak up those losses.

 

[geoffw]

Unless youre self employed of course and have the ability to flow dividends through to that trust to soak up those losses.

Yes, it gets more and more complex the more possibilities which are considered.

I guess this is just one of the ways a trust can earn money to offset losses.

So as Terry says, there are many considerations, and there's not enough information to form an opinion.

So I guess the best advice is to get advice. From somebody who knows this stuff. Not just from a lot of people who you don't know giving you advice.

And that includes this advice.

 

[Terry_w]

I would like to hear stories from those who
1. Set up a trust and regretted it
and
2. Set up a trust and are lovin' it

 

[Ausprop]

Unless youre self employed of course and have the ability to flow dividends through to that trust to soak up those losses.

what do you mean - an individual streaming dividends to a loss making trust? And the franking credits would be lost in the trust as well?

 

[Aaron_C]

That's well worth investigating. Especially if a trust has a corporate trustee, which you would do with a higher risk profession- like a food business.

Geoff - we are not talking about business ventures where a family trust is basically mandatory....we are talking about buying residential properties.

For me, it was well worth it- but partially due to circumstances which changed well after we decided to create the trust.

Yes, because you run a business. Let's make a proper distinction here.

 

[Aaron_C]

I would like to hear stories from those who
1. Set up a trust and regretted it

Chan and Naylor clients.

2. Set up a trust and are lovin' it

Business owners who actually need one.

 

[geoffw]

Geoff - we are not talking about business ventures where a family trust is basically mandatory....we are talking about buying residential properties.



Yes, because you run a business. Let's make a proper distinction here.

I started off with a trust which had a residential property in it. It ran for a few years with the property before the business came along. The financial benefits came about when the property became positive- and then again when we sold it for a healthy profit. If I had bought it in my name the CGT would have been in my own name only, instead of being allocated in the best way.

There were some advantages then which are not available now, but it still would have been beneficial now.

 

[sanj]

Chan and Naylor clients.



Business owners who actually need one.

haahaha well played

 

[Aaron_C]

I don't accept that geoff. If your business is in a family trust and you are selling a property in a personal name to realise a massive CG, then all you need to do is redistribute the business income to another relative.....same thing.

 

[geoffw]

I don't accept that geoff. If your business is in a family trust and you are selling a property in a personal name to realise a massive CG, then all you need to do is redistribute the business income to another relative.....same thing.

1. When it was set up there was no business. It was set up with the end in mind. The CG benefit would have come about regardless of whether or not there was a business.
2. It became quite positively geared early because we furnished the units. There was benefit then before we had the business.
3. The business income was small. Redistributing a small amount of buiness income would not have been anywhere near enough to offset the CG.