Trusts & Structures


I'm new to this so please excuse my ignorance. I was wondering if anyone here can help me decide which trust structure is better suited for my daughter and I to purchase IP's for our long-term future.

Our goal is that I would purchase the IP's on our behalf with the goal of never selling them but simply re-financing them and withdrawing my initial deposit to purchase additional IP's. Then when my daughter finishes her studies, she would take over the properties and continue our portfolio's growth.

We have spoken with several accountants about the benefits of using Units/Discretionary/Hybrid Trusts. In fairness, they have all said to us that their Trusts were best suited for us and that their establishment fees were reasonable. However, its difficult for us to decide which is most reasonable when their prices range from $1350 - $3500, including company trustee set-up fees.

If anyone has any experiance in dealing with Co&Trust Structures, can you please advise what are the main/critical points that are trust must/should contain to make it usuable for purchasing and re-financiaing IP's. Thanks in advance.
Hi Mark,

Are you intending to pump in enough capital to make the whole portfolio run positive (i.e. rental income > interest and other costs)? If so an off the shelf discretionary trust is fine - however, you may lose CGT and land tax concessions so keep this in mind.

There's been a lot of discussion on Hybrids: do a search on "HDT"


The Y-man
Thanks "The Y-Man" for your advise.

Realistically speaking, negative gearing the properties looks alot more achievable for us at the beginning than positive cash-flow IP since i hope to borrow max amounts possible. Therefore if would be nice to be able to claim tax deductions on the borrowings of the trust. Under such issues, is an off the shelf discretionary trust still fine?

Also what Land Tax Concessions are you referring to?

Also will my daughter have to cover any CGT when the properties are transfered to her?
Therefore if would be nice to be able to claim tax deductions on the borrowings of the trust. Under such issues, is an off the shelf discretionary trust still fine?

No.... and looking more like no for any other trust type structure.

Also what Land Tax Concessions are you referring to?

For Victoria, check the differences in Land tax between individuals and trusts below:

Also will my daughter have to cover any CGT when the properties are transfered to her?

In a trust - no. The ownership does not change. Personal - there are CGT and other duty implications.


The Y-man
As Y-Man said, make yourself a big pot of coffee and do a search under HDT. I bet lots of threads come up - they're a much discussed thing. A few things have changed of late, so stick the more recent threads i.e. don't go back through last year's ones.

Scott (who doesn't have a trust but who is admittedly pretty unsophisticated)
There are many things to consider here:
- tax
- asset protection
- estate planning
- borrowing ability
- change of control
- named beneficiaries

They are all important, but probably borrowing ability is up there as the most important - if you cannot borrow you won't get far. So you want a structure that is flexible. You may want to be able to add people later to help borrowing etc.

With a trust you need a trustee - which can be a person or a company (or both). It is the trustee that is the legal owner of the property - the trustee's name goes on title. So if you have a company you can change control by changing directors and have the title holder still the same. ie no need to go to the land titles office. (you probably would be required to get permission of your lender though)

If you have a trust with a person as trustee you can still change trustees with only nominal stamp duty - but it is a bit of a process. A company will make it easier to hand over control to your daughter.

Lenders will want guarantees from the people behind the trust or company. But they won't take guarantees from anyone. You need to show that the person will benefit from the property in some ways. So if you had a sudden borrowing problem - like a credit default or loss of job, you could put another person in as director or shareholder and get their income included too for serviceability. This can be done without naming them on the trust. Adding a name to a trust could cause a resettlement and result in one trust closing and selling all the assets to the new trust (in the eyes of the ATO) - so you want to avoid that.

You also have to be careful about naming people as beneficiaries in the deed. Some banks (such as RAMS - see another recent post) insist on a guarantee from every adult named beneficiary in the deed. You want to avoid this as it creates more risk and uses up borrowing capacity. So including your daughter as a named beneficiary may not be so good in this regard.

But not naming her will limit the number of potential beneficiaries in the future. She should be included as a beneficiary by her relationship to you or another named beneficiary. However her future relatives may not be, depending on the wording. ie your daughter's distant relatives may not come under the wording.

Overall a discretionary trust with a company as trustee is very flexible. But another potential problem is additional difficulty getting finance because of the company.

So many things to consider - and often the accountants and lawyers don't know about the borrowing aspects.
Also I should add that this structure is not the end - you will probably form new structures as you go along. You shouldn't need to plan too far ahead with it.

Thank you all for your experience and sound advice. It seems that I have a lot to consider before going any further.

Can any one recommend an accountant within the Bayside Melbourne area that specialises in IP and doesn't charge exhausting fees?