Who DOESN'T use trusts?
- Thread starter alexlee
- Start date
When we started really didn't know a thing about trust and bought in my wife and my name. Followed this by a few other property purchases all in our name.
Have insurance on all these properties and every other property.
Started business which ended up being a unit trust as we were going to have partners. In the end the units were held by some companies both of which ended up with substantial assets one mainly share the other more property.
One company is then owned finally
by a family trust. Our family trust each have a company as a benificiary so that we can keep income within the strucuture rather than having to take it as distributed income and be in the 48% tax bracket.
It is throught this structure that we can control our income in such a way that we will not pay any personal tax apart from the imputation credits that we receive. Obviously that means we will limit our income to the 30% flat range (can't remamber exact amount ).
Most recent property purchase was in our name as the other properties we held were starting to generate taxable income which would have upset my tax planning.
Cheers
Have insurance on all these properties and every other property.
Started business which ended up being a unit trust as we were going to have partners. In the end the units were held by some companies both of which ended up with substantial assets one mainly share the other more property.
One company is then owned finally
by a family trust. Our family trust each have a company as a benificiary so that we can keep income within the strucuture rather than having to take it as distributed income and be in the 48% tax bracket.It is throught this structure that we can control our income in such a way that we will not pay any personal tax apart from the imputation credits that we receive. Obviously that means we will limit our income to the 30% flat range (can't remamber exact amount ).
Most recent property purchase was in our name as the other properties we held were starting to generate taxable income which would have upset my tax planning.
Cheers
From my reading the pros and cons seem to be:
Pros
Ability to distribute income to the person with the lowest tax rate
Asset protection in case the person gets sued
Cons
More difficult and costly to set up and administer
Higher risk of loss of control?
Individuals have certain advantages like higher land tax thresholds.
Alex
Pros
Ability to distribute income to the person with the lowest tax rate
Asset protection in case the person gets sued
Cons
More difficult and costly to set up and administer
Higher risk of loss of control?
Individuals have certain advantages like higher land tax thresholds.
Alex
I'm just in the process of finalising my HDT setup with Nick.
He's not there to sell you a trust. In my case he really didn't provide a recommendation 1 way or another, saying clearly there is no immediate benefit.
I thought about it long and hard as I really do like to keep things simple and the trust structure does have an extra cost to running it.
After reading all the input from the forum, the onle thing that became clear is that we cannot really say for sure what will happen to use 10, 20 years down the track and the trust is providing me a base from which my assets can grow while retaining the options for distribution of income down the track.
If I had continued to build the asset base in my own name then I would be limiting my options for future possibilities.
But I do envy those with the simple structure - the less paperwork and visits to the accountant the better.
He's not there to sell you a trust. In my case he really didn't provide a recommendation 1 way or another, saying clearly there is no immediate benefit.
I thought about it long and hard as I really do like to keep things simple and the trust structure does have an extra cost to running it.
After reading all the input from the forum, the onle thing that became clear is that we cannot really say for sure what will happen to use 10, 20 years down the track and the trust is providing me a base from which my assets can grow while retaining the options for distribution of income down the track.
If I had continued to build the asset base in my own name then I would be limiting my options for future possibilities.
But I do envy those with the simple structure - the less paperwork and visits to the accountant the better.
Use of trusts
Hello All,
Alexlee, I don't have any share investments at the moment. But when I did have shares, I didn't use a trust structure. This was mainly because I didn't know much about trusts back then.
I've read the book "trust magic" by Dale Gatherum-Goss. After reading this book, I think we should invest via a trust. You can have a hybrid trust where you give a loan to the trust. The trust will distribute income to you, but you get the interest deduction.
It depends on how big your investments are. If you're in the high tax bracket (ie 48.5%, which changes to 46.5% in the 2006/2007 financial year), you can have a investment trust and a trustee company that gets the distribution. This way your marginal rate of tax comes down to 30%. A saving of 15-16% in tax. But... this is just my opinion. It's really up to you.
I'm going through a divorce at the moment. If I had set up a trust before marriage (and a pre-nuptial agreement like Nicole Kidman), I could've protected my investment from the ex. Luckily I never had any property or shares in my name during the marriage, so I got nothing to worry about. But protecting your assets, investments, etc is very important.
Hello All,
Alexlee, I don't have any share investments at the moment. But when I did have shares, I didn't use a trust structure. This was mainly because I didn't know much about trusts back then.
I've read the book "trust magic" by Dale Gatherum-Goss. After reading this book, I think we should invest via a trust. You can have a hybrid trust where you give a loan to the trust. The trust will distribute income to you, but you get the interest deduction.
It depends on how big your investments are. If you're in the high tax bracket (ie 48.5%, which changes to 46.5% in the 2006/2007 financial year), you can have a investment trust and a trustee company that gets the distribution. This way your marginal rate of tax comes down to 30%. A saving of 15-16% in tax. But... this is just my opinion. It's really up to you.
I'm going through a divorce at the moment. If I had set up a trust before marriage (and a pre-nuptial agreement like Nicole Kidman), I could've protected my investment from the ex. Luckily I never had any property or shares in my name during the marriage, so I got nothing to worry about. But protecting your assets, investments, etc is very important.
There are two significant benefits which are largely ignored when considering trusts.
1. Estate planning. Careful use of trusts allows people to transfer assets to children without incurring stamp duty and tax. Let's say you have accumulated 4 properties in a trust and you want to leave one to your son and one to your daughter. Trust cloning (and it must be done in accordance with the ATO guidelines) can allow you to transfer those assets without incurring stamp duty and tax. You can also have different trustees of these trusts so your children control the assets. Imagine that you are about to die and want to pass on your assets without incurring huge tax liabilities. Trusts can assist with this form of planning. Maybe you don't want to transfer assets but some people do and this can be a significant benefit.
2. Refinancing principle. Probably one of the most overlooked benefits of hybrid trusts. I won't go into the details but it can have significant tax benefits.
Binding Financial Agreements (pre-nups) are effective if done properly. It is critical though that you are honest up-front otherwise the pre-nup could be deemed to be ineffective in the courts.
1. Estate planning. Careful use of trusts allows people to transfer assets to children without incurring stamp duty and tax. Let's say you have accumulated 4 properties in a trust and you want to leave one to your son and one to your daughter. Trust cloning (and it must be done in accordance with the ATO guidelines) can allow you to transfer those assets without incurring stamp duty and tax. You can also have different trustees of these trusts so your children control the assets. Imagine that you are about to die and want to pass on your assets without incurring huge tax liabilities. Trusts can assist with this form of planning. Maybe you don't want to transfer assets but some people do and this can be a significant benefit.
2. Refinancing principle. Probably one of the most overlooked benefits of hybrid trusts. I won't go into the details but it can have significant tax benefits.
Binding Financial Agreements (pre-nups) are effective if done properly. It is critical though that you are honest up-front otherwise the pre-nup could be deemed to be ineffective in the courts.
We curently have 3 IP but still don't use trust. This is mainly because I didn't know about trusts until recently.
We are considering setting up a trust for our next IP outside NSW, mostly for flexibility of income distribution later on.
Cheers,
We are considering setting up a trust for our next IP outside NSW, mostly for flexibility of income distribution later on.
Cheers,
coastymike said:
Coastymike, if say I die with a will and my IPs pass to my heirs (in accordance to my will) do they have to pay stamp duty to transfer it to their names? My understanding was that a property you inherit gets a cost base equal to the market value at the time of the original owner's death.
What sort of stamp duty is payable for deceased estates and heirs?
Alex
Death is a different situation (for assets acquired after 20 September 1985 the cost base will the cost base of the deceased not the market value - but this won't be an issue until you dispose of the asset) but what if a parent wants to transfer an asset to their son in their late 50s. If they hold the asset in their own then the transfer will constitute a disposal and CGT will be payable by the person in their 50s. May not be an issue but could be if you want to transfer assets for various reasons (including planning for the small business CGT concessions).
coastymike said:
Ah, I see. That makes sense. My plan is that my kids get very little until I cark it (and I plan to live forever). Asset transfer isn't really a big consideration for me. Put it this way, if my kids are good money managers they won't need my money. If they're bad money managers, they shouldn't get my money. I keep telling my parents to spend everything, since I don't want it.
Alex
I'll drink to that Alex. Hic!alexlee said:
The only area in which we would vary is that I have a "disadvantaged" daughter who is currently catered for simply by living at home. Easy. At a time of my choosing I will buy her a unit and that will be in a trust, prolly with her brother as trustee. The reason for this will be simply to protect her from bad advice to which she is supseptable.
Thommo
Yes there does seem to be two extremes. Those who want to spend it all before they die and those who want to pass on some of their asset to their children before they die. Most of my clients tend to come from backgrounds were passing on some of their assets to their children prior to their death is very important. I have generally found the higher ones overall net worth the greater the issue of estate planning becomes. It can be very difficult (in fact rather selfish) to spend $5M between age 60 and death.
Richard raises a very valid issue. It is interesting how people's attitudes change when they have a disadvantaged child or granchildren. Suddenly when your child is diagnosed with MS at age 35 and may never work again spending all those assets doesn't seem as attractive.
Richard raises a very valid issue. It is interesting how people's attitudes change when they have a disadvantaged child or granchildren. Suddenly when your child is diagnosed with MS at age 35 and may never work again spending all those assets doesn't seem as attractive.
Mike, You're not speaking on my behalf. I have no wish to spend it all (my lady and I live simply).coastymike said:
I just don't feel any obligation towards the sons.
I'm playing the stockmarket so I feel I can't guarantee anything in the future but the boys have never expected it so cannot be disappointed. How does one plan for "obstinately independent" offspring? Miss Kath, on the other hand, will need life long assistance.
We set up a family trust specifically because the adult kids in the family are JV'ing in property with us. It didn't cost much to set up at all. About $300 I think. The main benefit to us is the spreading of the income to the trust members who have smaller/ no real paye incomes. As the IP's are not being held, they are subject to CGT.
There are complications with using Trusts though in relation to how O &A's(contracts) get written up and bank loan docs and transfer papers are done. Still not sure if we got all that paperwork right!. And we won't know till the first return is done next year after the properties sell.
There are complications with using Trusts though in relation to how O &A's(contracts) get written up and bank loan docs and transfer papers are done. Still not sure if we got all that paperwork right!. And we won't know till the first return is done next year after the properties sell.
