Hi guys,
I am going to an auction in 3 days and would love if somebody could tell me if I am silly to buy an investment property in SA in a family trust set up where I myself is the trustee.
Key points
I have never operated this trust before
I will pay cash for the property
My company is a beneficiary of the family trust
I believe that the biggest problem is being sued in the capacity as trustee? Is that correct? But often does that take place?
If I am sued personally, the assets in that trust are protected, right?
Is there any problem in gifting the money to the trust from myself personally? I guess if I lend it to the trust and I am sued personally creditors could go after that loan?
Thanks in advance
No, there will be little asset protection in the early years especially. But gifting would be safer than loaning. How you structure the gift is important.
Asset protection will also depend on the structure of the trust and how it was all set up.I
would suggest you gift to a separate trust Band have that trust lend to the purching trust Aand then have trust B put a mortgage over the property.
Why personal trustee? Trustee is personally liable for debts of the trust.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thank you for your reply , Horitsu Sensei ( I lived in Japan for 17 years)
No, there will be little asset protection in the early years especially.
What you are saying is that any gifts to my DT are subject to creditors if I am sued personally (not as capacity of trustee) for the first 5 years? Hence that is why a separate trust band is ideal?
Why personal trustee? Trustee is personally liable for debts of the trust.
The trust will have no debts as the property will be fully paid for by a gift from me personally to the DT. But I think you are saying that if a tennant say sued the trustee than I personally would foot the bill?
Thanks again,
Depending on the structure of the ‘gift’ it could be clawed back indefinitely. There are also arguments which could be run by creditors that it wasn’t a gift but a loan etc.
Trustee will be the ones entering contracts so you have to think about future potential issues too. Subsequent purchases, loan agreements, agreements with builders etc. THen you have the negligence side, with liability if the trustee is sued.
Think about tax too. Almost always not a good idea to pay cash for something for tax reasons. Once the cash is paid it cannot later be converted to a loan. e.g you may want to access the cash to buy an ivory back scratcher. The trustee may need to borrow to get the money for you – not deductible whereas if trust B had lent the money to A then A could borrow to refinance this loan with the interest deductible. Money released back to trust B would could then lend to you interest free.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
In summary the best way to go is the following?
(1)Set a family trust with a corporate trustee
(2) Can I use have my present PTY LTD company (share trader) as a beneficiary (100% owner/director) for distributions? Or should I set another PTY LTD bucket company?
(3) I would like to gift the money to the family trust as I want to retire and concentrate on my interests in the near future. I do not wish to go into debt and will not want the funds returned to me at any stage. (except on sale) Is that Ok?
(4) Is it OK if I move into that property myself at some stage? I am thinking I might live there and rent some of the rooms out to Japanese students. Does the law allow that
with a corporate trustee? I know in case the company owned it I would be up for FBT.
Thanks Terry again…….( chikai uchi ni go soudan sasete itadakitai to omoimasu)
I don’t know your situation, so can only comment in general.
1. I would suggest you look at a unit trust with a company trustee. Units owned by a discretionary trust.
This will give 4 additional benefits, transfer control and low or no stamp duty, refinancing principal, transfer to SMSF later etc2. Not a good idea generally to use a company to trade shares, but yes this company could be a beneficiary of the trust.
3. gift – but won’t money back could be construed as a loan. maybe just have the trust drafted so the trustee can distribute capital. look closely at the terms of the trust
4. depends on the terms of hte trust deed. FBT may not apply as the company would only own it as trustee.
sodan suru no wa itsudemo kekko desu.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
No Rule against perpetuities in SA so lucky you, or lucky grand children anyway.
RPI | Certus Legal Group / PRO Town Planners
http://www.certuslegal.com.au
Email Me | Phone MeProperty Lawyer & Town Planner
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