Family trust bank loan setup – which account?

Thanks Terry for the information. It would be terrible to have to pay tax on the trust offset amount again. However I just thought of a disadvantage in “gifting” the money into the trust offset account. Basically that money will be locked within the trust from thereon and can only be “moved” between or within trusts, because say for example down the track if I needed that money for other personal investments etc then transferring the money out of a trust account to a personal account would be like personal income which is taxable (again). Unless the trust “loans” me the money by paying down its loan then redrawing and charging me slightly higher interest than its paying.

Thanks Richard for the legal fee information, I had no idea about this as the banker made the process sound like a routine background/credit check nor did she mention any fees involved when we asked. Will let you know how I go.

bb8

Hi wanted to update on my progress seeking finance.

So far the bank has offered a separate choice package with the same 0.8% discount for the trust. They remain reluctant to offer more than 80% LVR without LMI, and want to know why we won’t cross secure the loans. Not sure if this offer is standard “market rate”. I am not sure if I should be seeking other offers – mainly from the perspective of what you guys have been advising, to keep loans separate.

Richard – the trust perusal fees are around $400 – not negotiable unfortunately. They will waive the first year package fee though so it works out to be the same?

In relation to the trust offset account, we intend to put our wages into this account to try to achieve neutral or positive balance which can be distributed. If these wages are “gifts” then does this have to be done through an intermediary account (eg. the personal offset account), and how does this affect asset protection for the trust property?

Thanks
bb8

Thanks Terry. I’ve attached a post you made recently in relation to gifting cash below:

hi Jack
Since you have a high income you should be able to knock that PPOR loan debt off in 1 to 2 years. After that you should have considerable cash available so I think you should seriously consider a discretionary trust. You can start gifting cash to the trust and park it in a 100% offset account and this will quickly reduce any losses. it will also offer significant asset protection and long term tax benefits.
Whereas if you get the property 99% in your name, then when it turns positive you will be paying 47% tax on the rent and you will cop all the CGT too. It may turn positive faster than you think once the PPOR is paid off.
Terryw

For now our intention is to gift rather than loan to the family trust to achieve neutral/positivity in the trust loan. I will have to check if the constitution allows the trustee to gift the funds back to me. If I needed money from the trust offset account it would be arranged as a loan from the trust.

It seems from your response as though rather than having wages go directly into the trust fortnightly, I need to make “lump sum” gift contributions (say monthly) from a separate account (eg. the offset account linked with my personal IP). What kind of “proof” is required when we gift to a trust? The trustee is a company with my partner and I as appointors/directors. Does that mean we cannot gift money to the trust because we are the directors?

Re: further advice, is the accountant or the lawyer a better source of knowledge to further clarify these aspects?

Thanks again
bb8

Thanks Terry

Ok I will ask the lawyer about deeds of gift and also ask the accountant. I am not sure about what you’ve written as follows:

“You would need to check the trust deed about whether the trust can gift to beneficiaries. Also check with your accountant if this creates any tax issues.”

How is whether the trust is able to gift to beneficiaries relevant to the setup? I had a look at the trust deed but it only mentions distributions (income and capital).

The intention was if we needed funds in the future for personal use/investment then the trust would loan us the monies at market rate, hence the interest income made by the trust can be distributed with tax savings.

bb8

Ok I will ask the accountant about the tax implications of a trust gifting to beneficiaries and see if its worthwhile getting the lawyer to help review/amend the trust deed. My initial layman’s thinking is that it would still be perceived as a distribution hence taxable. Although I think if I set up other trusts in the future (eg for other properties) then I should be able to “gift” between trusts.