Trust or no Trust!

I have a business (pty ltd) which is the trustee of my investment trust. I hold shares and real estate in the name of the trust. My wife and I are directors and shareholders of the pty ltd company.

I use the business for non investing income, and own all ‘doodads’ in the name of the business – ie cars, phones, compfuters. These are all assessable tax expenses and done properly with logbooks and depreciation schedules – all in MYOB.

The trust has a minimal income that comes in each year and gets distributed to either me or my wife, depending on who has the lowest assessable income for that year. We are both named as beneficiaries. We don’t take any cash out – just the tax for the income, and the ‘distribution’ counts as capital placed back into the trust. At this stage i have a personal guarantee on the loans of the trust but hopefully one day it will stand as it’s own entity for lending purposes and I won’t be tied debtwise to it.

The big difference with trusts vs businesses is that the profits must be distributed each financial year, whereas with a business (as long as you don’t qualify for PSI rules) you can retain profits and pay them out over a number of years. If you are doing a lot of property buying and selling, a company might be the way to go. Some people form a single company per deal and keep a hierarchy of them.

However with my other business activities it makes sense to hold assets in a trust in case of either bankruptcy, legal action or whatever else people dream up to try and take what you have. It (the trust) also helps in estate planning (hopefully not a problem for a long time yet)

It costs several thousand per year of accounting fees to keep all this together so not for people starting out on their first property deal unless they have got the cash to spare. I also spend probably 10 hours a month with accounting tasks to keep track of everything. However I have a bound set of financials going back 5 years and I don’t fill out loan app forms, I just throw the financials on the desk along with a typed ‘proposal for finance’ which gives them much the same info as lenders application forms. Trust me it works.

This setup just suits me – every person has different goals, is at a different stage in life and has different amounts of assets. Talk to an accountant. Don’t just Google it, pick up the phone and make an appointment.

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We all need somewhere to live – but do we all need a CBD apartment?

I think you should keep any investing and any business in a separate entitly. Business is a dangerous game, many get sued and go under. If you had your huses in there with a business, then they would be at risk.

With property you would generally want a discretionary trust or a hybrid discretionary trust to allow negative gearing. Business would only need a discretionary trust, but should have a pty ldt company for limited liability purposes – with the shares owned by your discretionary trust.

Terryw
Discover Home Loans
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