There is a lot of misunderstandings regarding trusts.

A trust can be setup in a matter of 10min on the internet from very good law firms. Most solicitors do not draw up your deeds themselves, but simply purchase a deed from one of the companies specialising in trust set ups. What the solicitor can do is to give advice on the way it needs to be set up, such as who should be the appointor, trustee and so on.

Once the trust has been set up, it needs to be stamped by the office of state revenue – govt taxes – in mosts states, except QLD apparently. There is stamp duty payable, and this varies from state to state and depending on the settled sum. In NSW, stamp duty would be $200 and up, in WA it is only $10, and nothing in QLD.

Costs of setting up a trust varies from about $130 on the net to $1000 with most accountants, and up around $10,000 for one prepared by your barrister.

Trusts have may advantages, but two disadvantages are:
1) No Land Tax free threshold – so you end up paying a bit more
2) Losses cannot be distributed.

There are many different types of trusts and a way around 2) above is to set up a hybrid trust, which will allow an idividual to claim the interest on the loan and offset their personal tax.

As for loans, it is not much different than getting a loan in your own name. Lenders will require the individual to prove their own income for serviceability and trustees will be required to give personal guarrantees.

I have written a series of general articles in my newsletters about trusts. Send me an email if you want a copy.

Terryw
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Its not the sort of thing you can write a book about. What do you want to know – With a No Doc basically you can borrow 70 to 80% of the value of a proeprty without showing an income or assets/liabilities. There is no serviceability test.

With a Low Doc, then lender requires an income to be listed, as well as your other assets and liabilities. Your declared income must be enough to cover all expenses (in the eyes of the lender), but there is no checking or verification of your income – so most people exagerate it to qualify.

Terryw
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I don’t think you should ever buy an asset in anything but a trust – one exception is your main residence because of the CGT exemption.

A trust is better than a company as it has more flexibility with distribution of income and asset protection.

Terryw
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I had a look at Centrelink’s policies a while back for my grandfather. It seems they will count trust assets as being your own if you control a trust (or company). They define control broadly to include ebing an appointor, trustee, director of trustee etc. And receiving a distribution would possibly also fall in here.

So they have it pretty much covered.

I think there is a bit on centrelink and trusts here. http://www.taxlawyer.com.au

One possible solution is to keep the pensioners clear of trusts and to have any trust controlled by younger family members – who can then spend their money as they see fit.

Terryw
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what are you thoughts on capital gains over the enxt years years? If you think there will be none, then maybe you are better off investing elsewhere and waiting a bit before getting back into property.

Terryw
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Its great if you can get both. But if you had a choice, I would certainly go for capital growth.

Buying cheap property in an area with little prospects of increasing in value is not worth it. You will be faced with many problems and high costs. what if you are making $50 pw +ve cashflow and rates rise, or the hotwater system busts. This could eat away all benefits.

Capital Growth is not guaranteed, but in certain areas, it is more likely than others. This is what will make you rich.

Terryw
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Paul, that’sa really good booklet isn’t it!

Terryw
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Sometimes it is difficult to get the lendeer to agree with a revaluation quickly if there is LMI involved. It is generally 6months if so. But one way around this is to suggest you are going to another lender.

Terryw
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