Yet another question about trusts

From: Tony Dixon


Hello all,

It has been recommended frequently in this forum that a discretionary trust with a company trustee is a very effective structure for asset protection and tax minimisation for those investing in property.

I want to be certain which entity should own the properties.

Should properties be purchased in the name of the company, or in the name of the trust?
For both positively and negatively geared IPs?

cheers, Tony
 
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Reply: 1
From: Dale Gatherum-Goss


Hi Tony!

There is no one correct answer, one size fits all approach to investing.

I believe that the trusts are brilliant vehicles to use for asset protection and wealth creation as I have mentioned (OK, OK, I'm starting to sound like a broken record) on many occasions.

A trust allows you wonderful flexibility with your investments and to minimise tax legally.

It also keeps your options open for the future and this is where many people lose sight of the bigger picture.

I see people starting their investing and those who for a number of reasons, cease investing and start to live off those investments. It is then, that the benefits really start to shine.

So, to answer your question, the trustee of a trust should own the assets regardless of whether the assets are currently cashflow positive or negative.

Have fun

Dale
 
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Reply: 1.1
From: E L


Dale
So does that mean if you have a company trustee for the trust, that the company buys the asset? I thought the actual trust purchased the asset. Sorry to confuse the situation.

Cheers
EL
 
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Reply: 1.1.1
From: Dale Gatherum-Goss


Hi EL

No, you have stated a common misconception that confuses most people, so please don't apologise. The trust itself will own no assets. However, the trustee owns all the assets of the trust on behalf of the beneficiaries.

Does this help?

Dale
 
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Reply: 1.2
From: Tony Dixon


Thanks Dale (yet again!)

I'm amazed that you get any work done considering the time you spend advising on this forum :)

Much appreciated.
 
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Reply: 1.2.1
From: Glenn Mott


This has really thrown me now...mmmm

If a trust has a corporate trustee and the trustee holds the assets on behalf of the beneficiaries then why do we need the trust at all???

....Glenn (very confused, thinking trust holds assets, pty ltd company is trustee, beneficiaries as directors and employees of pty ltd company).....hmmmm???
 
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Reply: 1.2.1.1
From: Dale Gatherum-Goss


Hi!

A lot of this stuff is what I had planned to talk about in my seminars. My manual also covers a lot more of this as well.

What happens with a trust is that someone (a settlor) decides that you are a lovely person and they wish to put $10 aside for your future benefit. This creates the trust.

The trustee then holds that $10 and any future gifts, purchases or otherwise, on your behalf.

It's a strange situation, but, the trust itself is not a legal entity, but, the trustee is on it's behalf.

Have I confused you further?

Sorry, if I have.

Dale
 
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Reply: 1.2.1.1.1
From: E L


Dale Dale Dale!!!

I am a tad confused. Thought I had this under control but obviously not.

The reason I am a little on the anxious side is we're mid-way through a property transaction.

We are very much looking forward to your course, but can't wait until the 9th of May!! It will be all over red rover by then.

I was thinking exactly the same thing as Glenn. If the assets are to be held by the company trustee, why do we need the trust??

Cheers
EL - one very confused and not so happy little camper )-:
 
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Reply: 1.2.1.1.1.1
From: Dale Gatherum-Goss


Hi

I'm sorry!!

The trust is needed because the assets are held "in trust" for the people who are to benefit from the trust.

The trustee is the figurehead of the trust who makes decisions on behalf of the assets held within the trust.

Does this help. If not you are welcome to call me and I'll try to explain more.

Dale
 
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Reply: 1.2.1.1.1.1.1
From: E L


Thanks Dale - I think we've got it under control. BUT we'll still be there on the 9th with some questions for you.....

Cheers
EL
 
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Reply: 1.2.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi EL

That will be great. I'm hoping to meet lots of people that I talk to on this forum.

Again, if I can help explain things a little better. Just shout, here or off line.

Dale
 
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Reply: 1.2.1.1.1.1.1.1.1
From: E L


Morning Dale
Your information and posts are very much appreciated. This is the last question.... I promise (for at least a couple of hours.)

If you have a company acting as corporate trustee for your trust, the wording for contracts etc when actually buying the property would be - Company X as trustee for Y Family Trust.

I've tossed and turned all night, hope I'm not too far off the mark.

Cheers
EL
 
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Reply: 1.2.1.1.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi EL!

Yes, you have it right!

Dale
 
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Reply: 1.2.1.1.1.1.1.1.1.1.1
From: E L


SIGH of relief....I think I was having analysis paralysis!
Thanks Dale - looking forward to meeting you on the 9th.

Cheers
EL
 
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Reply: 1.2.1.1.1.1.1.1.1.1.1.1
From: Owen .


Hi EL,

No time to nod off just yet. You wrote -

"If you have a company acting as corporate trustee for your trust, the wording for contracts etc when actually buying the property would be - Company X as trustee for Y Family Trust."

You can take this one step further and put the property in your own name too. The contract wording would then be - EL as Director of Company X as trustee for Y Family Trust.

My advise has been that you do not even have to write all of this on the contract and to just buy properties in your own name. The link between you, the company and the trust is implied by the accounting behind the purchase. The loans are in the company name and everything has separate tax returns. You can also make a notation in you company records to this effect too to further support the implication.

The reason I have been advised to do this is because in the years to come you may end up having a freehold asset held in trust for you although the title deeds have your name on top of them as the purchaser. A simple change of address and the property can now be owned by you. No title change, no stamp duty, no CGT. I have checked this out and apparently it is common practice. Any comments Dale?

Get your own legal and accounting advice and don't take my word for it though.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 1.2.1.1.1.1.1.1.1.1.1.1.1
From: E L


Just when you thought it was safe not to worry about trust issues......Owen throws a curved ball question!!
I'm all ears Dale.

EL
 
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Reply: 1.2.1.1.1.1.1.1.1.1.1.1.1.1
From: Duncan M




Curve ball indeed!

Duncan

-----Original Message-----
From: propertyforum Listmanager
[mailto:listmanager@bne003w.webcentral.com.au]
Sent: None
Subject: Yet another question about trusts


From: "E L" <emdclow@bigpond.com>

Just when you thought it was safe not to worry about trust issues......Owen
throws a curved ball question!!
I'm all ears Dale.

EL



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Reply: 1.2.1.1.1.1.1.1.1.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi!

Interesting though, but, I wouldn't do it. The main advantage of a trust is it's asset protection. By using a company as a trustee, we leave the individuals out of the equation completely and I like this.

Furthermore, there is more advantage of using a trust to own assets than in your own name.

I would not like to argue in court that the IP was bought in a trust when the contracts do not show this as a fact, despite the notations elsewhere. Especially, if the amounts add up and the tax office are looking for a fight.

And, if you are looking to transfer free of stamp duty and CGT, you are contradicting your own argument and leaving yourself without a defence.

I like the idea of avoiding taxes, but, I do not see this as a smart option.

Sorry.


It may be OK, I haven't seen any high wealth individuals doing it. I wouldn't do it and I would not recommend it.

Dale
 
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Reply: 1.2.1.1.1.1.1.1.1.1.1.1.1.1.1.1
From: Owen .


Thanks Dale,

My advisor is adamant that by putting the property in my name, because I am a director of the company trustee then the implication was there by law that the property could be held in the trust. Accounting then confirmed this via the individual entities tax returns.

I admit that the change of address bit sounded a bit dodgy to me and I see no reason why I would ever need to do this. If I have a large portfolio (which I plan to) why would I? Perhaps it may be a way for a retired individual with a remaining single IP still held in trust to get it back into their name easily. Again, my advisor has been doing this for 35 years and it has never been an issue.

Personally I agree with you and never intend to do this. However, see me again in 20 years and I'll let you know what has transpired.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 1.2.1.1.1.1.2
From: PT Bear


EL,

Dale mentioned that the trustee is a 'figure head' - such as a company or an individual. What this means is that the trustee can be changed at any time very quickly and easily.

Thus if someone sues the trustee, you can easily change to another trustee. Your assets are associated with the trust, not the trustee thus giving the flexible asset protection.

If a company owns the asset, the company can be sued. If a director is sued, they can go after the company. As I understand it, putting the asset into a trust sort of enables you to change the representitve of the asset at will.

This is my (basic) understanding of asset protection through trusts. Make sure you talk to the properly qualified people before you take my word for it though.

PT_Bear
 
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