Trusts: What do you want to know

Discussion in 'Legal Issues' started by Terry_w, 3rd Jan, 2014.

  1. Rich_

    Rich_ Member

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    Can't wait until this book is released, I'm definitely in for a copy :)
    As a PI newbie/lurker, I've been reading Terry_w's posts for a while now and it's been quite an education to date.
     
  2. perthguy

    perthguy Member

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    Something that might be interesting for your book.

    I have an investment partner. We buy an old house on a big block 50/50. We knock over the old house and build 2. At the end, I own one and my investment partner owns the other without paying GST and capital gains tax.

    As far as I know this is done with a bare trust and a partition agreement. But I think the trust is set up before the land is purchased. It seems the order is:
    1. set up the trust
    2. buy the land
    3. draft a partition agreement
    4. build the houses
    5. partition the land
    6. dissolve the trust?

    It seems that a number of people want to do this so it would be good if your book could explain the bare trust part of the equation.

    source: http://www.13wentworthselbornechambers.com.au/barlinpdfs/partitioninglandaugust2010.pdf
     
  3. Terry_w

    Terry_w Member

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    This a partioning agreement - where each party agrees to own a specific part of the land from the start. When it is sub-divided there is no change in beneficial ownership as each person gets their portion. It is only the titles that are changed.

    Won't be covering it in the book as it is very complex and laws vary state to state. Might just give it a mention though.
     
  4. Terry_w

    Terry_w Member

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    Thanks Rich - did I mention the price is going to be $500? per book:)
     
  5. perthguy

    perthguy Member

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    I'm more interested in the "bare trust" side. How do I purchase a property in a bare trust? This is the part in the document I linked to:
    "If the co-owners enter into a deed whereby they acknowledge that the land is to be held on bare trust for the benefit of each other in accordance with the proposed plan of subdivision each co-owner will hold their interest in the other co-owners post-partition lot on bare trust for that other co-owner."
     
  6. Terry_w

    Terry_w Member

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    You remove all clothing when you sign the transfer document.

    A bare trust is where A holds property for B absolutely. Like all trusts associated with land it must be in writing.

    It is like a custodian trust for a SMSF - this is a bare trust, although some argue it is not really!
     
  7. perthguy

    perthguy Member

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    I was hoping you would cover this in your book... although not the bit about the clothing :D
     
  8. Rickardo

    Rickardo Member

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    Hi Terry,

    Apart from the usual basic info that you'd probably want to cover if you're trying to keep the book simple (types of trusts, benefits, costs, etc) I'd like to see the practical progression of the most usual course of action over an investor's life, ie - purchasing negatively geared residential property that eventually turns positive, then a potential diversification into higher yielding commercial property or shares. Also how to integrate these into attempting to receive negative gearing benefits early on (may include the use of multiple different trust structures at different points), maintaining appropriate asset protection, transitioning into retirement (ie potentially selling into an SMSF) and how the use of such investment focused structures would effect estate planning.

    Importantly, I'd like to see things referenced to what you've used to research and make a decision. You wouldn't have to fill the book with quotes or references as this would cause it to lose appeal to those who are looking for a simple read, but a footnote or further reading for those who are interested would be of value (eg journal or professional association articles, register of publicly available PBR's, PS LA's, AAT/Federal Court Cases, etc)

    I'd also like to know the current level of legislative acceptance each structure has been afforded through the courts, ie has it been tested for family law through a divorce proceedings? Has it been tested for asset protection through bankruptcy proceedings? Has it been tested under Part IVA for the general anti avoidance provisions? Also regarding tax law, what aspects has the ATO considered acceptable in say a PS LA or publicly available PBR but that has not yet been tested through the courts?

    Good luck :)
     
  9. perthguy

    perthguy Member

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    This might go beyond the scope of your book but I would be interested in how to set up a unit trust to buy residential property so that I can invest in units in the unit trust and my SMSF can invest in units in the unit trust. It would be great if you could also cover how units can progressively be sold to the SMSF so that perhaps one day the SMSF could own all the units in the unit trust.
     
  10. hobo

    hobo Member

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    I'd also like to know whether there is an equivalent to a "bare trust", in QLD? I hear a lot about them on SS but they only seem to be in (some) other states?
     
  11. Terry_w

    Terry_w Member

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    Bare trusts can exist everywhere. One example is where A dies and leaves his house to his 2 year old son. A trustee will usually be on title until that son reaches 18 and then titles can change.
     
  12. Terry_w

    Terry_w Member

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  13. hobo

    hobo Member

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    OK, so that to me sounds like a discretionary trust. Is a bare trust something different again, or is it just another term used to describe a disc. trust?

    I am aware of unit trusts, and discretionary trusts. Are there any others?

    I know discretionary trusts were/could also be called family trusts in the past (ie family discretionary trust) but there are/were no actual differences to a "discretionary trust", in my understanding. Is that right?
     
  14. Terry_w

    Terry_w Member

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    There are a few ways to classify trusts.

    They could be fixed or variable for instance.

    A bare trust is where there is one beneficiary who is absolutely entitled to the property. The trustee is just holding it for them until they ask for the title to be transferred. It is a fixed trust because there is no discretion. e.g. SMSF custodian trust.

    ALso consider that the name or label of a trust doesn't mean much. A unit trust could be called The Smith Family trust. It is the terms of the trust that determine what the trust is. A fixed trust won't be a fixed trust unless it contains certain features.
     
  15. perthguy

    perthguy Member

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    Ugh! It's all so complicated! If only someone would write a book about it ;)
     
  16. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    I have seen a few. Problem is if they are read by a neville numpty and they follow a DIY approach they will stuff it up..ie merger issues, or incorrectly dating something. If accountants make these mistakes mums and dads have no hope.

    So these books get thicker and thicker and more technical. Not technical enough for a lawyer but so technical someone makes a silly tiny mistake. Maybe even years later. So its often a confusing read for the novice, a bit too technical to Mum & Dad and nowehere near technical enough for a lawyer who might consider Jacobs or Ong more their mantle . I like the TIA publication on "structures" (Harwood Andrews) though but it lacks a lot. Its not a publication to hand a client !!

    Different state law v's tax law, land tax, proposed trust tax law changes ??, Cases like bamford, corporations act, ...Trustees acts, duties law, common law....even superannuation. There is a lot to address.

    Isnt the truth the best advice is from an expert ? A lawyer ? Not a book. So plenty of others have written these guides from the perspective of say an investor but it misses the mark on trading and asset protection etc. So then investor thinks its OK to share the fixed trust for a trading enterprise and misses the impact on super cause the trust now trades and doesnt comply with Reg 13.22D for the property. Thats going to be your challenge Terry. I have found most prospective clients know a little about trusts but ask me cause they seek a solution. This is like a medical issue. You cant possibly learn it all - Its faster and safer to see a specialist. And I cant recall seeing a cancer specialst write a DIY guide.

    I'm an accountant and rewriting the master Tax Guide wont explain tax law to a newbie. And I cant describe it better than them. The other half hate MTG and buy the other book.

    I'm happy to proof read too. Might I also suggest you update Chris Batten's old investor book ? And Dale GG's... with a good section on prop development.
     
  17. perthguy

    perthguy Member

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    A book is a tool and a tool is only as good as the person using the tool. I would use such a book to educate myself before seeking professional advice. The reason is that I need to understand, to some extent, the advice I am being given. Years ago, before I bought my first IP, I saw a very reputable tax accountant in Perth. He was a bit of a smarty and I couldn't really talk to him. I was lucky to have studied tax accounting at uni so I knew his "advice" did not suit what I was trying to achieve. I followed up with a contact of a person I trust, who is also a very good tax accountant. Tax accountant 2 confirmed my fears that acc 1 gave advice that did not suit my situation. Years later it turns out acc 2 was on the money and I saved a lot by following his advice... because I could talk to him and understand what his suggestions meant to me.

    If someone decides to read Terry's book and DIY and makes a mess, that's not the fault of the book, it's the fault of the person using the book. If someone reads the book, gets professional advice and is able to talk to their adviser and figure out the best structure for what they are trying to do, then that is brilliant.
     
  18. Colin Rice

    Colin Rice Perth Mortgage Broker

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    Well stated perthguy.

    This advice would apply across the board.

    We cant be an expert in everything but it is a good idea to know enough about a subject to discern from poor, average and good advice.

    In the majority of cases it is literally at our fingertips :D
     
  19. sheiks

    sheiks Member

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    Hiya Terry

    I've not posted in years....but looking forward to your book with bated breath :D
     
  20. Risky Business

    Risky Business Member

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    I wish I could afford your upcoming book Terry but I buy my pies at the end of the day when the Bakery is closing cos they're cheaper.

    I might have to enrol in law/accounting at Uni. Get access to their library books and then cancel my enrolment before the fees are due.

    Where there's a will, there's a way.

    Wish you the best with the book and hope it's a winner for you. I will now assess potential new friends on their capacity to obtain this book for me.