Hi
I have been trying to work out how best to set us up for our trust structure, working from information gained here, & i may have stuffed it up & confused my accountant. I would appreciate any help from those in the know as to how best to set this up.
Our situation is as follows…- Bec works f/t good job & wage – staying on for a while yet with the possibility of reducing to part time in a couple of years
- Troy runs business, soon to be sold, to work f/t on property
- property will not be a once off, even if limited success early, we are commited to it long term
- PPOR with $300k+ equity
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- other shares & assets we are willing to sell if req
- just bought our 1st IP with ‘and or nominee’ on contract & settling 13/3
- anticipate buy & sell more IPs in near future. at this stage we are prefering to buy, reno & sell, although this may change in future.
we are looking for our best structure for financial & asset protection purposes & have no concern as to having equal assets or anything similar set up incase of future split, so our questions thus far on structure are….
What type of trust set up? Corp or family or other?
Who should be the owners/directors of the company above the trust? sole/co directors? beneficiaries?
Do we place current PPOR into trust? (currently in both names)
If not, do we transfer PPOR into lower income paying spouse name?
How do we best set up for Margin Scheme & how do we commence this?anything else i have overlooked?
My accountant is happy to set this up in any form that I request (he is not one of those that i have read about in some places here that will only do it his way) but how I have been explaining it to him is different to how he suggests we should do it. I think I have confused myself & him
I would greatly appreciate any help here from those with experience either professions or those who have had theirs set up by professionals (sorry, but those who ‘think’ they might know please refrain from confusing me any further)
thank you
Troy
Im my opinion this is personal info and details should not be discussed in a public forum for the world to see.
From the comments I see that you are still confused and I am willing to have a chat with you. E-mail me if you want.
CATA
Asset Protection Specialist
[email protected]I disagree with Catas response. Troy – I think its great that you’re willing to share this information with us because there will be many of us in the same boat currently looking to setup structures (myself included). The idea of these forums are to throw around the roadblocks we come across in the programme.
It sounds like Cata has some advice for you and will hopefully be willing to share his knowledge with us…
Regards
JonathanGood point Jonathan but the info on what strategy is missing. The direction investment will change the type of trust.
My opinions from the info given are-
Type of trust? Discretionary or Hybrid (with corporate trustee)Directors? I would chose only one of you, the person who will be the risk taker, seen as doing all the dealings.
Beneficiaries? Both of you and anyone else that you want. You do not have to direct any monies to them. Make sure that you can change beneficiaries without having to resettle the trust.
PPOR? NOT in a trust, as you will loose the CGT exemption. Some options are transfering into the risk averter’s name( not the company director) . Or secure it using another option.
Margin Scheme? Which one?
Anything Else? Probably, but find out soon if you want the current IP under contract to be in the trust.
CATA
Asset Protection Specialist
[email protected]I’m a retired tax accountant, and my advice is keep it simple.
Leave PPOR as is and draw down a line of credit to use as equity on ip’s.
What type of property investing are you talking about ? Buying and renting houses, reno’s, property development ?
Setting up a family trust with a corporate trustee is very expensive and costly to keep running. If the houses are negatively geared the loss cannot be distributed to the beneficiaries.
Keep it simple initially buy in joint names (tenants in common) and review your situation in 12 months.
Either way a good accountant should be advising you of the best way and not sitting on the fence.Amanda
“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”I have a question for all the accountants.
What do you think is the difference between a Family Trust and a Discretionary Trust?
I find that some know but most don’t.
Amanda, a Hybrid Discretionary Trust can get the -ve affect.
CATA
Asset Protection Specialist
[email protected]hi troynbec
sorry but i’m interested in what your account has recommended, I don’t need all your details he does.
I agree with cata and very sorry but strongly disagree with AmandaBS, for one simple reason a structure can start very small but if the setup is wrong from the start especially if you buy in your own name can be very hard or costly latter on.
I will give you a couple of responses to cata post and by the way i have never met cata but here the response.
1.Discretionary or Hybrid
my first was Discretionary ( but a familty trust which is slightly different).
2.Directors? I would chose only one of you, the person who will be the risk taker, seen as doing all the dealings.thats me and the dear wife is not a director of the companies.
3.Beneficiaries? Both of you and anyone else that you want. You do not have to direct any monies to them. Make sure that you can change beneficiaries without having to resettle the trust
all the family and I can add members if required.
4.PPOR? NOT in a trust, as you will loose the CGT exemption. Some options are transfering into the risk averter’s name( not the company director) . Or secure it using another option.in the wife’s name currently and has been for along time and not in any of the trusts nor is leverage to any loan.
so that not bad for a start.
next
margin scheme is only used for developing and is for gst and unless you are doing developing its nt applicable but your account can organise.
I will leave the next answers when i see the question and would like you to post without all the nitty gritty what the account has recommended.
by the way the above is only the core of the structure there is alot more work then the above that neeeds to be done.
but its a start.here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]Great advice guys
Thanks for taking the time to share. Very thought provoking…
Cheers
JonathanHi All,
I was of the opinion that you needed your structure in place before you signed the contract. Do you leave yourself open to action by the ATO by setting the trust up after signing?
I think i read somwhere else it will throw up a few red flags with regard to tax evasion?I believe troynbec are doing a buy reno sell.
If your doing a reno which is a short term venture would it be feasible to just use a company to purchase and sell. This will access the 30% tax. Meanwhile there is no need for CGT exemptions. As the property is Hopefully bought and sold within a year?
Happy to hear others thoughts…-Thomas
“More Time To Snowboard”
Hooray for AmandaBS
after 30 years of being involved with a swag of companies, trusts, discretionary, unit, family, etc etc………i’m starting to like the KISS principle
i think grossrealisation likes jigsaw puzzles…….
or maybe just keeping his accountant amusedhb
I would probably look at setting up a hybrid trust with one of you as trustee. Also, probably only one named beneficiary (because banks may ask for a guarrantee from the other named beneficiaries.
The hybrid may only cost $1200 or so to set up. You will be able to negative gear if needed, and also have the flexiblity in the future if needed – plus the asset protection issues.
I would never buy in personal names. But Thomas may be correct, since you’ve signed hte contract and the trust is not set up, it may be too late this time. Check this with your solicitor as it may vary from state to state.
Terryw
Discover Home Loans
Parramatta
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Thanks for all the great advice… I have learnt alot from this discussion!
Hi everyone & thanks for your advice
To clear a few things upWe don’t have a problem with the information that we have posted. I am sure others wouldn’t do that, but it is their choice
We have purchased (yet to settle) as the purchaser “Troy and/or nominee†so we can change this prior to settlement
We intend to buy, reno & sell this one
We intend to do many of these, which we expect will lead to developments as well. We do not expect to neg gear anything but would not rule it out (if we reno something & cant get a buyer then we may rent it out). I need to make this profitable as to justify not working, so we have committed to this & not just a once off, or go running to the employment section if something doesn’t work out on the 1st oneAccountant is a good friend who is willing to set up as we like however I think my misunderstanding of what we need to do has confused him. He is only trying to do as I ask but I have been asking the wrong things……thus the reason for me posting this!
We have drawn a LOC on the equity, and also have some private finance available (along the lines of a bank loan with interest etc. but we do not have to pay until sale nor do we have a concern about loan ratios etc)
I can’t think of anything else relevant at the moment, so please feel free to comment as you like
Troy
PS Thanks Cata for the chat. You have been very helpful.[biggrin]
TroynBec
The ducks are flying closer to home!!!!
wow troynbec
welcome to world of buy , reno, sell
everyone’s doing…….and i mean everyone
even an accountant i know, has throw anyway his pencil and picked up a nail bag.you should start a society, or maybe even you own webpage…….
http://www.therenogang.com.au……..
hire an ad agency to sell the properties…30 sec tv adsyou could even end up on channel 7’s “hot properties”
BUT i hope you do better than the reno sisters who did a small buy, reno, sell up north of melbourne
they spent……..
2 years renovating, and after all costs,
made a whooping $20,000$20,000 profit
2 years
4 people working on it
that’s $5,000 each for 2 years
that’s $2,500 each a year
thats $48 a week
thats $1.02 an hour……………hey…….
so many people renovating……..
so much profit to make……tell ya what……..i’ll shout the beers…(got a pencil job)
hb
Hi hb
Well i am not sure what to think about your post. Infact I am quite confused. Can you please let me in on whether you are/were….being funny?
jealous?
warning us?
encouraging us?
drunk?But I will take you up on the offer of the beer!!!
Troy
TroynBec
The ducks are flying closer to home!!!!
Hi Troy
Drunk?
does 2 glass of red wine make me an alcooo?jealous?
been there done that….i don’t think sobeing funny?
“Do we place current PPOR into trust? (currently in both names)”
imagine taking something from a tax free environment into a taxable environment…….you obviously don’t know the repercussions…i had a laugh thereencouraging us?
i hope so….because all the advice you can get the better…i reckon
most people can make money out of a buy, reno, then sell when the market is go UP.
but you take on the extra challenges of doing it when the market is going SIDEWAYS….now that couragous.you obviously know something that the experts don’t….
take Michael Yardney (the property guru) comments…
“Its very difficult to make money out of renovations if you intent to sell your property, but there is lots of money to be made if you buy, renovate and refinance.
We’ve been involved in 8 of these in the last 6 months and they work ” gangbusters”. “Do you have a plan in place just in case you need to hang on to it?
Now i don’t know how much experience you have at renovating…being a toy store owner….but i know 2 guys that should have a fair idea…..
1…an builder with 30 years experience
2….an ex tax accountant who hated his job, so took up a nailbag and became the builder apprentice.
and you’d never guess what these 2 are doing
right….their first
buy, reno sell……surprise, surprise
now you’d think these 2 could make some money wouldn’t ya?
a builder…..an accountant……what a combinationdon’t know yet…2 months to go before it hits the market
but, having a look the other day at the progress…..i think the accountant wished he was back behind the computer……
so the numbers ,bought 510k…all up with costs come to 650k, hoping to sell for 700k plus….6 months turnaround
didn’t want to tell them but around the corner, much nicer house ..more space…is up for sale for 630k…..
but hey …….the market will turn…..
unfortunately, if it doesn’t …..they carn’t hang on to it
but with so much experience it will end up [exhappy]but wouldn’t it be a pain in the butt, to only make ….say 20k
and then have to guarentee your reno for the NEXT 7 years…….
ouchhh……hope the bogg holds long enough.good luck
hb
Do we place current PPOR into trust? (currently in both names)”
imagine taking something from a tax free environment into a taxable environment…….you obviously don’t know the repercussions…i had a laugh there> Why laugh? Right now they are totally exposed to a lawsuit (the risk is usually low anyway, but depends on profession, etc). What would you suggest to avoid this problem? I am not suggesting a trust but I do know rich people who have their own personal residences in some sort of biz. structure.
If I were troynbec I would however do what you suggested (through you stories) and work out what would you do if you couldn’t sell the proeperty at all or you could only sell at 85% FMV (fair market value).
Steve has the same lesson in one of his books (I think his first one) where he details a reno he did with his biz. partner and father. It didn’t really work out at all and cost them time (and potential money). Of course it wasn’t too bad but now with the boom over it is harder to sell (when Steve sold I think it was just a bit before the boom so the market was still quite boyant).
hellman
Troy and Bec asked the forum because they don’t know the answers. They are not asking for anyone’s permission to do what they intend to do but simply wanting to research, research, research. Asking a forum like this for answers is part of that research.
It makes me a bit nervous to ask something in case I get a sarcastic answer, but I know that most people on this forum are genuinely trying to help.
Helpful answers surely don’t include belittling other forum members.
Wylie.
I agree Wylie. Ol’ hb is probably trying to help the only way he knows how. hb wrote in another thread that in 60 years time he’ll be 155, so I can only presume he’s the most up to date whizz bang 95 yr old website surfer in the geriatics division. I’d also prefer to see his experiences detailed on this rather than derision…..apparently he’s not jealous as he’s done it all before.
From our side troyand bec, our PPoR is privately held, as are all our RIPs. It works OK and the threat of litigation is teensy due to the nature of the business…..we are comfortable with the exposure.
With our IIPs, we set up a different company for every purchase and have the company go the trustee for the Discretionary trust which buys the asset. I am the sole director, but unlike GR, we are wrapped up and tied up with so much cross collateralisation it’s not funny. Guarantee’s coming out of our ying yang……wouldn’t dream of trying to sell anything, it’d be an admin nightmare trying to untangle the web. Happy to put up with that to get exposure to the larger deals where we find the sweet spot of both good capital growth in CBD properties and good nett yields where the properties more than pay for themselves (hence why we don’t need Hybrids).
Once again, due to the different nature of the beast with IIPs, it’s marvellous dealing with both General Managers / Operations Directors / Finance Directors etc of large national corporations when you can put at the end of your emails Managing Director etc etc of some two bit company……rather than just “Troy and Bec”. I perceive it to help me when going toe to toe negotiating with the above and their high powered solicitor friends, especially when negotiating / signing Leases etc.
Anyway, this whole carry on – which hb would agree, is advised by accountants and lawyers, for the sole protection against accountants and lawyers ?? I’ve never, by choice, been to court, so can only assume that all of this trust nonsense that the professionals advise us to get actually withstands a full on assault in a court of law. Hopefully I’ll never have to find out. I have my doubts though….and hence simply go through the motions.
As a final point, we’ve also found that even with the best of intentions and thorough research, circumstances within your structure change as time goes by. We’ve paid our reasonable share of stamp duties ‘shuffling the chairs around the deck’, due to different living arrangements / work structures / access to more finance etc, but in the grand scheme of things it’s small fry compared with your overall direction that the group is taking.
Chin up, get something happening and start down the road. I find looking at the smorgasboard menu is very very confusing when you haven’t eaten anything.
You know dazz……i’m not having that 2nd red anymore….my finger slipped……. its should have been 115
troybec and wylie
apologies for any disrespect re asking questions about setting up a structure.
but the reality is the the system is so complex now, the only way to get any decent advice is to pay the money, and ask the professionals.
each question you ask has differently repercussion, depending on YOUR circumstances.
for example…(taken from http://www.australiandoctor.com.au)
Recently a GP was convinced he should transfer a rental property to his family trust. The property had been bought for $200,000 using interest-only debt, and was now worth $300,000. The stamp duty and other transaction costs were about $18,000, and the CGT was about $24,000.
This meant the transfer would generate non-deductible costs of more than $32,000 to protect just $100,000 of net equity. To proceed there should be more than a 32% chance that the rental property will be lost to litigation in the foreseeable future. This is unlikely, and hence my advice: “Don’t do it. Just make sure your insurance premiums are paid on time.â€
So who advised him…..accountant….forum guru….wife…..Recentlly looked at a spreedsheet that compared an investment through 1. Company 2. Non Fixed Trust 3. Fixed Trust 4. Individual
the summary
“Had the small business concession not been available, investment in an individual name would have provided the most favourable outcome. An individual would get the discount. A fixed trust will then be the next best option as the discount would be available, even although CGT would reduce the benefit of a discount from 50% to 25%. Neither a company nor a non-fixed trust would obtain a discount and both would provide a similar outcome”the benefits of each system keeps changing, only a GOOD tax accountant, keeping abreast will benefit you.
Do you know the implications of the new penalty land tax system for trusts that was passed by the Victorian Parliament ?
Do you want the structure to protect you from litigation?
Do you want lots of income now, or build assets for the kids and grandkids?running 2 companies, 2 trusts, and a SMSF, i am truely reliant on my collin str accountants……it costs…..$25k last year….but at least i get it from the horse’s mouth…….
now where did i put that red…..
good luck
hb
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