Family Trust Question

I'm no expert, but I did just cover off a few of these things with my accountant yesterday.

Cost to setup a trust is minimal, few hundred dollars, with no ongoing costs if you decide not to make use of it for a while.

If you want to setup a corporate trustee though, the corporation costs a bit more to setup, and has annual ASIC fees to pay (around $220 per year) whether you're doing anything with the trust or not.

As far as the trust goes, there are two main benefits

1) Income distribution. You don't mention salaries, but for instance if you're in a higher tax bracket than your wife, the trust can choose to distribute income to her and not you, saving on tax. It allows greater flexibility also, for instance maybe at this moment you're on the same tax bracket, but one of you wishes to retire before the other, so for now the income could be split evenly, but in the future the income could be directed to the retired person entirely. If you purchase in your own names, this is a one off decision that lasts for the entire time you own the property.

2) Asset protection. If you bought the IP in your own name, and something went wrong and you got sued, then they can come after all your assets (i.e., your family home as well). If you secure off the IP in a separate entity you have protection against this. I'm a lot less certain about this, but I think this really needs to be done as a corporate trustee rather than personal trustee to achieve the protection, but either someone else here or an accountant/lawyer could help clear it up.

As for cons, the main one is that while income is (must be) distributed, losses are quarantined within the trust. So if you 'negative gear' a property, you don't actually get any tax benefits as those losses can't be offset against your personal income, they stay within the trust and get accumulated to eventually offset future gains. So you do kind of get a benefit, but its delayed, not immediate like most people want from negative gearing.

As for using the equity as against saving up for the trust, the way I had it described to me is that I would personally take out the loan (in fact this would be a sub-account/split loan on the existing) to access the equity, and then basically sign an agreement between myself and the trust to reloan the money to the trust at exactly the same rates, so basically the trust pays the interest to me and I pay the bank meaning no net profit/loss personally. In your situation having no outstanding loan/mortgage I'm not sure if maybe that opens up further options though.

Hope that helps, and if I'm off on anything hopefully someone more expert will chime in.