Trust

From: Even Steven


I'm sure there are many investors using trusts to protect their assets. Briefly, what are the advantages and disadvantages of using trusts as compared with holding property in one's own name personally?
 
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Reply: 1
From: Steve Piggott


There are a number of advantages for using corporate entities. Namely asset protection, limited personal liability and the plus of not having debt personally ascribed to your own name.
Tax issues also arise... depending on the type of trust. These types can be : Unit trusts, Discretionary Trusts and family trusts and also combinations to create whats know as Hybrid Trusts.Even the association of a company to form a trustee company. For the correct usage of these types of entities you will need to formulate a business plan and tailor a specific structure. A tax lawyer and corporate lawyer will avail you of all the information you will need to give you the best set-up. My opinion is that it is best to own nothing personally ,but control all of your assets and the disbursements.

I'm afraid I cannot be more specific as I dont know your personal level of Investments.
As always seek the best possible advice from those who are qualified to give it.
Happy Investing
Neb :)
 
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Reply: 1.1
From: The Wife


also, do a search on the subject, theres lots in archive here.

TW
~Life is a daring adventure, or nothing at all~
 
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Reply: 1.1.1
From: Kevin Forster


This forum tends to be pro-trusts so I'd thought I'd list some disadvantages.

Some of the disadvantages of using a trust are the loss of flexibility and costs of running a trust.

Holding assets outside of a trust means that you are not bound by the charter of the trust.

The cost of running and setting up a trust will eat into cash that could be used to fund further IPs. Also included is the time required to run a trust which could be used to find further deals.

Trusts were targeted by the government but has since backed away from substantial changes this time but there is no guarantee that they won't be targeted again. One side of the political fence more so than the other.

Starting out and using a trust simply for protection is a very expensive way to do it. You only have a small amount of equity and very large mortgages on the properties. If you lose everything, it won't take as long to get back to where you were. Later on, a trust could be used as protection from malicious creditors, financially illiterate children/beneficiaries, etc. Most people claim that stamp duty will need to paid to move assets from a personal name to a trust. Currently that's true. However stamp duty is currently being targeted as something that could be phased out or reduced (specially in Victoria) in the future.

The above in no way constitutes advice.

My only advice is to grab a book from your local library on Trusts by N E Renton. The book explains trusts quite simply, listing the advantages and disadvantages.

Hope this helps

Kevin
 
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Reply: 1.1.1.1
From: Even Steven


Actually I got some advice from an accountant who said that if your IP are negatively geared then you are better off without a trust so you claim the loss against other income. With a trust you cannot allocate a loss. You can only allocate a profit.
 
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Reply: 1.1.1.1.1
From: Dale Gatherum-Goss


Hi

I am biased on this subject, but, I believe trusts are wonderful vehicles for investing. Most of the truly wealthy people that I see have and use trusts to protect that wealth and provide flexibility.

As has been pointed out earlier, this is a subject that we have discussed a number of times and yes, they are expensive to establish and maintain. But, . . .

at what price do you value your long term goals? at what price do you value financial freedom?

As I stated, I am biased. I use a trust for my investing for 2 reasons

it works for me
it protects my wealth should someone sue my business

As for the politicians. How do you think they keep their assets? I can assure you from my experiences and knowledge, they use trusts themselves. Any changes to the laws that have been around for 1,000 years will only be cosmetic ones or else the pollies will have to face two extreme problems

the wealthy
their spouses!

Have fun and I do encourage you to read the archives on this subject.

Dale
 
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Sim

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Reply: 1.1.1.1.1.1
From: Sim' Hampel


The advice I was given about trusts from my accountant was something along the lines of:

- if you are only intending to buy a few IPs and do not have any business risks (ie. you don't own or run any businesses), then with sufficient insurance you are probably okay without trusts. For only a couple of IPs, the costs of setting up and running trusts really start to eat into your returns.

- if you are ultra paranoid then you should use trusts no matter how many IPs you intend to buy

- if you are intending to continue building up your portfolio of IPs over time, you would be best served to start with a trust... "start the way you intend to finish" is the advice I've been given. That is, if you eventually want 50 IPs, surely you are going to want to hold them in a trust ?

- if you have any kind of business exposure at all, then you really should use trusts no matter what, as you have potentially unlimited risk to your assets through the businesses which cannot necessarily be completely insured against. Apparently this is what all the wealthy people do (like Dale was saying).

Many people I talk to insist that if they take out enough insurance (house / contents / personal liability / professional indemnity / and so on) then they are covered sufficiently if things should go wrong. Personally, I am a little more cynical about things.

There are plenty of examples where insurance companies have managed to find some fine print in their policies which allow them to avoid paying out.

Are you 100% certain that you have all eventualities covered with insurance only ? Can you guarantee that you are protected ? I take the approach of using trusts as insurance for my insurance... it's another layer of protection should things go completely awry.

At the end of the day, you need to get professional advice from a GOOD accountant (and maybe even a solicitor too on the risk side) and do a cost/benefit analysis to work out whether the costs of such advanced structures will be sufficiently covered by the returns of your investments.

If your investments are mostly tax driven (*sigh*), then you will probably find that the figures when trusts are used do not really work for you. This is why a lot of people I talk to about this stuff insist that trusts are not a good thing. But I'm not going to start into the argument about tax in investments again now ;-)

 
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Reply: 1.1.1.1.1.1.1
From: Rolf Latham


Hi Sim

Im with you on this one.

Insurance is only as good as the company providing the policy - waaaaaaaaaaaaaay to many variables for a risk managed portfolio

Ta

Rolf
 
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Reply: 1.1.1.1.1.1.1.1
From: Steve Piggott


why does every one think a trust is expensive ???
Setup is about $300.... and ongoings of not more than $200 pa.
If thats too much money to mitigate risk... then I advise the penny pinchers not to even expose themselves to the many risks of IP investing. Life is risky... you wont get out of it alive!
Risk is a part of everyday living....all we need to do to minimise that risk is employ knowledge. Knowledge will help you mitigate risk!!
Sorry for raving... but without corporate entities I cannot do business.
Happy Investing
Neb:)
 
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Reply: 1.1.1.1.1.2
From: Brett Burt


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I am using a unit trust to do a development. It is a very simple =structure. Many use a unit trust hanging off a private super fund, as =super funds cannot borrow, to do this.

Trust members money will probably stay in trust for a few years and they =opt out as when they wish, on completion of the project to take a profit =with their original stake (50 to 100K). They then obviously pay tax on =this, but being clever ......well that it is a different story.

The Trust can use the capital, profits from first small development and =the tax that would have been paid by a natural person or company to buy =another DA approved block, borrow construction cost and away you go =again.

If you have a group of friends wanting to make better than average =returns with fairly low risk the trust is they way to go.

BB

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I am using a unit trust to do a development. It is a =very
simple structure. Many use a unit trust hanging off a private super =fund, as
super funds cannot borrow, to do this.

Trust members money will probably stay in trust for =a few
years and they opt out as when they wish, on completion of the project =to take a
profit with their original stake (50 to 100K). They then obviously pay =tax on
this, but being clever ......well that it is a different story. =

The Trust can use the capital, profits from first =small
development and the tax that would have been paid by a natural person or =company
to buy another DA approvedblock, borrow construction cost and away =you go
again.

If you have a group of friends wanting to make =better than
average returns with fairly low risk the trust is they way to =go.

BB

------=_NextPart_000_0067_01C188AA.3E389D00--
 
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Reply: 1.1.1.1.1.2.1
From: Kevin Forster



The only question I have to ask about a trust is that if a property is in a trust, who owns the property? The trust does?

If there is a negligence lawsuit brought against the property due to a board on the verandah decking being loose and someone trips over it and destroys their knee and can't work ever again as a roofer so brings a lawsuit against the owner of the property does the trust really protect you? After all the owner of the property is the trust and you don't own anything.

You hope the $5 mil Public Liability Insurance would cover the lawsuit claim but you never know? If it doesn't and you have multiple properties in the one trust then all could be caught up in the settlement pay out.

The choice is to have 1 property per trust or multiple properties in a trust or somewhere in between but if a trust is sued and successful (barring appeals) then whatever is in the trust is gone.

Most people that advocate trusts have never been through this scenario and probably never will but in the meantime they will have paid over $500 per year for the privilege of sleeping well at night. That in itself is why some people fix interest rates - to sleep well at night.

Trusts protect the assets if the individual beneficiaries if they engage in wrong doing but they do not protect the asset.

Points to ponder

Kevin
 
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Sim

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Reply: 1.1.1.1.1.2.1.1
From: Sim' Hampel


My understanding is that trusts do not exist as an individual entity, and hence cannot be sued. The action would instead be taken against the trustee of the trust.

A common structure is to have a holding company (which owns no assets and does not trade) as a corporate trustee for your trusts. Of course, you would be shareholders and directors of the company.

If the trustee (the holding company) was to be sued, you do have the choice of sacking your trustee and appointing another one. Basically, you set up another company and appoint the new one as trustee of the trusts, thus avoiding any legal action.

Now, I may have got this wrong - I am not an expert in this field (and someone please correct me if I am wrong). I am also not sure of the exact mechanics of the process, so it is very important to get professional advice on this matter.

 
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Reply: 1.1.1.1.1.2.1.1.1
From: Steve Piggott


You got it right Sim!
I have a trustee company that has no assets of its own , it merely acts as a trading facility. The trust cannot be sued ! The trustee is the one that will be litigated against. So it makes perfect sense to hold IP's in a trust. If you want to be even further from the action... only be a shareholder in the trustee company.

Happy Investing Neb :)
 
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Reply: 1.1.1.1.1.2.1.1.1.1
From: Michael G


Steve,

I'm interested to learn, who's the director of the trustee company?, the person who makes the trustee decisions and signs the documents?

Also Steve, when you began buying via a trust, did you have to sign personal guarantees for the banks to obtain finance?

If you did, at what point did this requirement no longer apply?

If you did, were you able to later remove those guarantees?, how long did this take and what changed to allow you to do this?

What I'm talking about is when you first started using trusts, so if you didnt need to sign guarantees, how did you manage this?

Regards
Michael G
 
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Reply: 1.1.1.1.1.2.2
From: Anony Mouse


On 12/19/01 3:14:09 PM, Brett Burt wrote:
>I am using a unit trust to do
>a development. It is a =very
>simple structure. Many use a
>unit trust hanging off a
>private super =fund, as
>super funds cannot borrow, to
>do this.

>Trust members money will
>probably stay in trust for =a
>few
>years and they opt out as when
>they wish, on completion of
>the project =to take a
>profit with their original
>stake (50 to 100K). They then
>obviously pay =tax on
>this, but being clever
>......well that it is a
>different story. =

>The Trust can use the capital,
>profits from first =small
>development and the tax that
>would have been paid by a
>natural person or =company
>to buy another DA
>approved block, borrow
>construction cost and away
>=you go
>again.   

>If you have a group of friends
>wanting to make =better than
>average returns with fairly
>low risk the trust is they way
>to =go.

>BB

Brett,
Be careful about hanging unit trusts from a SMSF.
Here is an excerpt from ATO site:
, regulations were passed on 29 June 2000 to allow an SMSF to invest in a unit trust or a company without that investment being considered an in-house asset if certain conditions are met. The main conditions are:

The trust or company:

does not borrow;


has no assets that have a charge over them;


does not invest in or loan money to individuals or other entities (other than deposits with authorised deposit-taking institutions);


has not acquired an asset from a related party of the superannuation fund (after 11 August 1999) other than business real property;


does not acquire an asset (apart from business real property acquired at market value) that had been owned by a related party of the superannuation fund in the previous three years (not including any period of ownership prior to 11 August 1999);


does not directly or indirectly lease assets to related parties, other than business real property;


does not conduct a business; and


conducts all transactions on an arm's length basis.

http://www.ato.gov.au/content.asp?doc=/content/Professionals/super/24322063.htm&page=5


"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"
 
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Reply: 1.1.1.1.1.2.2.1
From: Sergey Golovin


If they are not allowed to buy, sell, hold, etc, why then superannuation companies/trusts allowed to by shares and banks shares in particular?

Are we missing something down here?

Serge.
 
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Reply: 1.1.1.1.1.2.2.1.1
From: Brett Burt


Sergey,

You correct, they can borrow and own. Private super funds sometimes setup
and hang a unit trust off themselves. The super fund buys units in the trust
and the trust borrows, with that money as part of the equity in the deal to
get suitable LVR. Private super funds must do this if they wish to borrow to
buy high priced items liek ip's, as they themselves cannot borrow. BB
----- Original Message -----
From: "propertyforum Listmanager" <listmanager@bne003w.webcentral.com.au>
To: <Recipients of 'propertyforum' suppressed>
Sent: Thursday, December 27, 2001 7:41 PM
Subject: Trust


> From: "Sergey Golovin" <ggolovin@bigpond.net.au>
>
> If they are not allowed to buy, sell, hold, etc, why then superannuation
companies/trusts allowed to by shares and banks shares in particular?
>
> Are we missing something down here?
>
> Serge.
>
>
>
> To reply: mailto:propertyforum.18257@bne003w.webcentral.com.au
> To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>
 
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Reply: 1.1.1.1.1.2.2.1.1.1
From: Anony Mouse


Serge,
The amendment was brought in to stop trustee from making inappropriate investments.
The ATO only want people to invest in product over which they have no control e.g Listed companies on the stock exchange.
Probably meant to stop some of the more creative schemes that were being marketed.
So maximum investment in a related trust is capped at 5%

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"
 
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