Trust Structure

Hi All,

Not wanting to go into the pros and cons of using trusts for asset protection purposes, as his seems to ahve been done to death in another post, may I please ask how people are generally structuring their IP purposes, nowadays.

It would seem to me that if you purchased in a discretionary trust, this would be OK (notwithstanding costs) if you had income from another source that could be streamed into the trust to soak-up any negatively-geared losses (e.g. own business in a trust which is has excess taxable income to distribute to the IP trust).

I also understand that hybrid trusts appear to be attacked by the loveable ATO and I think any benefits still attached to them currently will only become more "challenged" (from a tax view-point anyway).

I have always been concerned about holding an IP in my own name (notwithstanding the tax benefits) as it is important to me to sleep at night and if something happens and an insurance company deems me to be criminally-negligent in not having done something under the policy, then I could be liable. However, is this really an issue if I don't have any other assets and the only thing a litgant could take me for is the IP and even then the bank has first "dibs" on it.

Any thoughts you have on this matter would be greatly appreciated.


Zargor
 
It would seem to me that if you purchased in a discretionary trust, this would be OK (notwithstanding costs) if you had income from another source that could be streamed into the trust to soak-up any negatively-geared losses (e.g. own business in a trust which is has excess taxable income to distribute to the IP trust).
Or if you can afford to postpone the tax benefit to the time when the IP becomes profitable. Presumably you do expect the IP to ultimately make a profit, or you wouldn't have bought it. And once it becomes profitable, the DT structure offers significant tax advantages over holding in your own name.
zargor1 said:
I also understand that hybrid trusts appear to be attacked by the loveable ATO and I think any benefits still attached to them currently will only become more "challenged" (from a tax view-point anyway).
Agreed.
zargor1 said:
I have always been concerned about holding an IP in my own name (notwithstanding the tax benefits) as it is important to me to sleep at night and if something happens and an insurance company deems me to be criminally-negligent in not having done something under the policy, then I could be liable. However, is this really an issue if I don't have any other assets and the only thing a litgant could take me for is the IP and even then the bank has first "dibs" on it.
If the only thing you own, and ever plan to own, is the IP, then you're correct, you probably don't have to worry too much about asset protection. But if you plan to accumulate a portfolio, then you should "begin with the end in mind". If you think you may ultimately benefit from having properties within Trusts, then it makes sense to set it up that way from the outset.
 
annoying tho that lenders seem to be getting more and more anit-trust. CBA for example told me that they just wont lend on vacant land in a trust(yet bankwest will - nuts hey?)
 
I have always been concerned about holding an IP in my own name (notwithstanding the tax benefits) as it is important to me to sleep at night and if something happens and an insurance company deems me to be criminally-negligent in not having done something under the policy, then I could be liable. However, is this really an issue if I don't have any other assets and the only thing a litgant could take me for is the IP and even then the bank has first "dibs" on it.

Are you self-employed / running a business?

Cheers,

The Y-man
 
annoying tho that lenders seem to be getting more and more anit-trust. CBA for example told me that they just wont lend on vacant land in a trust(yet bankwest will - nuts hey?)

The CBA's rational is that as it's vacant land and in a trust, you're obviously a developer. They'll be happy to do it as a commercial loan though :D

BankWest will be reluctant to look at trusts at all unless it's a trust deed that they've got on file from before their policy changed. Don't believe a word they tell you on their customer service line, those guy's don't have a clue.
 
The CBA's rational is that as it's vacant land and in a trust, you're obviously a developer. They'll be happy to do it as a commercial loan though :D

BankWest will be reluctant to look at trusts at all unless it's a trust deed that they've got on file from before their policy changed. Don't believe a word they tell you on their customer service line, those guy's don't have a clue.

interesting!

also, I am talking to a bankwest loan officer re getting an approval for a house and land in a disc trust.... is he just yanking my chain?
 
Many thanks for your thoughts, people.

Y-man, I don't have my own business as yet but may do at some point in the next 24 months, so I don't have any legal matters hanging over my head.

Ozperp, point taken about the trust being OK when the IP becomes positively-geared as why would you buy an IP otherwise. The onus is thus on me to do my DD and ensure that if a discretionary trust structure is right for me, I can get it to a positively-geared point, asap. Whilst my experience is that banks hate lending to trusts, if I have already given a 20% deposit and they are lending on their valuation, then the property itself should be sufficient security for them (at least in theory!).

Zargor
 
An important factor is who borrows what from whom.
If you borrow in your name, and lend to the trust, any compartimentalisation of the IP (or any assets held in trust) is compromised.
If you borrow in your name and buy units issued by the trust (unit or HDT), same applies.

The ATO attacked those who pushed the envelope by wanting it all ie, asset protection and tax deductions. As they say, you cant have it all.
 
I think that the ATO only really had an issue with deeds that allowed

1. Neg gearing streaming to the highest income earner
2. Positive income streaming from the same asset to go to another person, usually a lower tax bracket earner.

But hey, im just working off memory, ask a tax guy/girl :)

ta
rolf
 
I think that the ATO only really had an issue with deeds that allowed

1. Neg gearing streaming to the highest income earner
2. Positive income streaming from the same asset to go to another person, usually a lower tax bracket earner.


Hi, yes. They also had - have - an issue with deeds and resolutions that allow for units to be redeemed for less than market value.

When in unit trust mode for a particular property, the hybrid trust needs to actually be acting as a unit trust for that particular property. Simple.
 
Trust + Single income = no asset = more Govt benefit?

Does anyone know if a single income family has 1 kid or 2 kids, no asset under the parents names. All IPs and PPOR under trust, does that mean this family be entitle to some sort of gov't welfare money? If so how much and any info be great.
Many stay at home moms seem to have quite a fair bit every week from the gov't and the more children the more $ is that right? how does that work?
 
Does anyone know if a single income family has 1 kid or 2 kids, no asset under the parents names. All IPs and PPOR under trust, does that mean this family be entitle to some sort of gov't welfare money? If so how much and any info be great.
Many stay at home moms seem to have quite a fair bit every week from the gov't and the more children the more $ is that right? how does that work?

The federal govt provides means tested benefits to PR and citizens. In your case, it will be the Family Tax Benefits A and B. FTB B is for the low income spouse (home maker) to look after the small child. They are based on income and assets test. If you are trustee of the Trust, the income and assets of the Trust will likely be added up as your income and assets. Value of PPOR is excluded but if it's owned by the Trust then its value will likely be included in the assets test. The benefit levels available are based on the number of children and their age.

What's your entitlements? It depends on the above parameters and thresholds of eligibility. Read at Centrelink website for Family Tax Benefits A and B. But based on your circumstances, you will likely be entitled to FTB B at least and probably A also if the single income is average. Make an appointment with Centrelink and discuss your situation to assess actual entitlements.
 
Centrelink take any trust that you control as being your trust and count all assets and income of the trust as your own. They define control very broadly to include being a trustee, director/shareholder of trustee company, appointor, director/shareholder of appointor company or even beneficiary.

If you control a trust you will need to give them the tax returns of the trust.

In some cases it may be that you don't control the trust. eg. your son has a trust and you are a beneficiary and have received a distribution in the past.

So you need to be very careful with planning for centrelink benefits. eg. probably a good idea to never distribute to relatives nearing retirement age.
 
So you need to be very careful with planning for centrelink benefits. eg. probably a good idea to never distribute to relatives nearing retirement age.

Hi, there are some trust deeds which exclude beneficiaries if they would otherwise be eligible to receive means-tested Centrelink benefits to ensure that those relatives nearing retirement are not negatively affected by the younger and wealthier family member. This could prove useful in such a circumstance.
 
I had a property, which was a little cashflow negative when I bought it, but based on advice from the forum, I bought it through a trust.

The property was a block of flats (the famous "flock of bats", for those who remember).

I started furnishing the units, and so the property became quickly cash flow positive.

(I did have two other IP's, so the negative of losing land tax exemption in NSW did not apply to me).

I was by far the highest income earner in the family.

The trust enabled distribution of the profits in a far better way than if I had owned it in my name, or my wife's name.

I was able to claim some items which I would not have otherwise been able to claim.

And, although it was my intention to keep it long term, I had to sell because of business expansion.

I sold at a huge profit. 50% growth in 3 years.

The profit from the sale, after deducting acquisition expenses, was able to be distributed in a very tax efficient way.

Asset protection, of course, was the primary purpose. If I told you anything else, the tax office be after me.

And when I bought it, the trust structure wasn't even very good for me. I was losing negative gearing benefits.
 
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