Okay, hopefully I can explain this question without too much confusion!
My husband and I are buying properties, mostly to wrap. The recommended structure is to have a company ABC Investments Pty Ltd as a $2 company, which acts as trustee for a family trust ABC Family Trust.
When I buy property, I believe I should fill in the contracts as “ABC Investments Pty Ltd as trustee for ABC Family Trust”.
Now, a friend has been talking with me about doing some joint ventures in this area, with her as the money partner. This is where I start to get a bit hazy on the structure side of things (always assuming I got the first bit right!! hehehe)
We set up a company as ABC XYZ Investments Pty Ltd, with either 4 directors or 2, one from each couple.
Then do we set up one family trust ABC XYZ Family Trust or do we need two family trusts, ABC Family Trust and XYZ Family Trust.
In the first instance, I would think that in buying property I would fill out the contract the sign way as when it was just my husband and I buying. But if we need to use 2 family trusts, how does that work? Do we have to alternate between the two trusts, eg first property into ABC Family Trust, second property into XYZ Family Trust? Or do I fill out the contract as ABC XYZ Investments Pty Ltd as trustee for ABC Family Trust and XYZ Family Trust.
I’m getting writer’s cramp just thinking about it!
I’d like to get a clear understanding of this, because depending on how many things need to be set up, I need to work out a setup cost for the JV.
Plus of course I need a good legal agreement between the two parties, right?
So many things to think about…!!! [
]Keep smiling
FelicityHi Felicity!
How are you?
Thanks for your post… let’s see if I can provide some answers…
Buying Property
If all ABC P/L is is a trustee coy for the ABC Family Trust, I’d just buy the property in the name of ABC P/L. The rest is fine to include, but I think that it is generally unnecessary if the Trustee only acts for one trust.
Multiple Families in One Trust
This is generally not a good idea for two reasons:
1. If your trust makes a loss then because you have multiple families in the trust then the complexity of administering the trust increases dramatically.
2. What happens if you have a fall out?
A better option to discuss with your accountant may be a partnership of 2 family trusts… this has its advantages and disadvantages too.
You could buy the property in the partnership name and the profits would wash down 50:50 to the two trusts.
Perhaps you might also consider a unit trust with the units owned by your family trusts if the partnership idea is not appealing. Property purchased in the unit trust and profits shared based on unit holding (50:50) which flow back to your family trust.
Bottom line… seek accounting advice.
Other Agreements
This would be wise. David and I have a partnership agreement. Perhaps also a ‘Heads of Agreement’ that spells out the relationship and the obligations of each party might be wise.
My comment here is that it’s wise to have something documented… not for any good times, but just in case things get ugly.
Hope this has helped.
Bye
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks for your reply on this Steve, you’ve given me some ideas!
Keep smiling
Felicity
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