Which trust should I use for portfolio?

[DanielG]

Hi All,

All my PPOR are currently in my own name. I need to look at whether I should place my next purchases into trusts to defend myself against litigation and seizure procedures.

This is all new to me. Can someone please tell which trust I should look towards creating and how much extra they cost annually to maintain?

Also, what are the negative and positives in regards to trusts? How does it impact Negative Gearing and cashflow?

Thanks

 

[Terryw]

All your PPOR? How many do you have

The only trust that would give you asset protection is a discretionary trust. This is because no one beneficiary has any vested interest in the trust. ie nothing amounting to the definition of 'property' under the bankruptcy act. Units of a unit trust and shares of a company are 'property' and can be at risk. However this risk can be reduced by holding the units/shares in a discretionary trust.

The biggest problem you may encounter with a discretionary trust is that any loss cannot be used to offset your personal income. The trust is a different entity for tax purposes. Any loss could offset other income from the trust, but not other people's income.

The next major disadvantage is that the land tax free threshold doesn't apply to discretionary trusts (in NSW). So your trust may end up paying land tax where you may not have if you held the property in your name.

If you have fully paid off your PPOR you would probably have some spare cash lying around after you are paid each week. This cash could be gifted to your trust which could then use it to pay down the loan on the investment property, or put into the offset account. This will mean any loss would rapidly decrease.

 

[DanielG]

All your PPOR? How many do you have

The only trust that would give you asset protection is a discretionary trust. This is because no one beneficiary has any vested interest in the trust. ie nothing amounting to the definition of 'property' under the bankruptcy act. Units of a unit trust and shares of a company are 'property' and can be at risk. However this risk can be reduced by holding the units/shares in a discretionary trust.

The biggest problem you may encounter with a discretionary trust is that any loss cannot be used to offset your personal income. The trust is a different entity for tax purposes. Any loss could offset other income from the trust, but not other people's income.

The next major disadvantage is that the land tax free threshold doesn't apply to discretionary trusts (in NSW). So your trust may end up paying land tax where you may not have if you held the property in your name.

If you have fully paid off your PPOR you would probably have some spare cash lying around after you are paid each week. This cash could be gifted to your trust which could then use it to pay down the loan on the investment property, or put into the offset account. This will mean any loss would rapidly decrease.

I have 3 IP's. Im looking at my 4th and want to know how to structure my properties moving forward.

SO what do most ppl use here when buying property?

If what you say is correct, Im out of pocket 12 K a year with no tax offset. On top of that, I have to pay land tax from the FIRST dollar. Jesus! Property is then not an investment, but a money pit!

Id like to get more feedback from members, as this is crucial.

 

[Terryw]

Most people buy in their own names.

 

[Terryw]

If you already own 3 IPs then you may have reached the land tax free threshold so would have to pay land tax if purchased under your own name anyway.

You should also look at using a unit trust to own the property as this creates added flexibility to transfer the units easily and cheaply.

 

[DanielG]

If you already own 3 IPs then you may have reached the land tax free threshold so would have to pay land tax if purchased under your own name anyway.

You should also look at using a unit trust to own the property as this creates added flexibility to transfer the units easily and cheaply.

Hi, no I have 2 in NSW and 1 in QLD. I have been very careful about land prices. Im still aways under.

Where can I learn more about unit trusts? Can you give me some details?

 

[Terryw]

Yes, read this thread for heaps of ideas
http://www.somersoft.com/forums/showthread.php?t=71494

 

[devank]

May be... Is is worth considering when retired? Could be used to protect the assets from our children’s divorces?

I'm sure there are other benefits such as buying cars and other stuff under the trust hence reducing the taxable income.