Does anyone have an insight into the pitfalls of transferring from a discretionary family trust to a hybrid one? Have just acquired “Trust Magic” (only ordered it Monday, here today!!!) and read Dale’s advice about this, but although he said it can be done, it could be dicey in regard to the closing of the first and creation of a new one.
I have a discretionary set up and only just read on Page 117 of Trust Magic that “a discretionary trust does not allow for the individuals to take advantage of the negative gearing tax benefits and so a hybrid trust is an attractive option for high income earners”.
I really want to buy an investment property through the trust and borrow money from the bank.
Can I have both a discretionary and a hybrid????
[blink]Paul
CAjun,
You can have as many trusts as you want.
Even place individual properties in each trust.
Usually you would have +cf assets in a discretionary trust, and -cf assets in a hybrid trust to take advantage of the ability to claim the borrowing interest in the individuals name.
Depending on your situation it may be a good idea to put in place a Pty Ltd as the trustee for the trusts, if you do not already have one in place.KP
Paul,
transferring from a discretionary family trust to a hybrid oneTransferring what? Do you currently have any assets owned by the discretionary trust?
read Dale’s advice about this, but although he said it can be done, it could be dicey in regard to the closing of the first and creation of a new oneDo you remember where in the book Dale talks about this (to save me searching the book to try and find it)?
GP
Maybe you mean change you existing discretionary trust deed to a hybrid one – before you actually buy anything?
If so, some of my clients have done this and it nearly costs them as much as the original deed. It might be better to just keep the old one and get a new additional hybrid trust made up.
Terryw
Discover Home Loans
North Sydney
[email protected]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 all for your advice.
KP – I have a Pty Limited in place for my discretionary, so will now look into a hybrid using the same Pty Ltd (is that possible??)
GP – only assets at this time are shares which I understand I have to distribute the dividends regardless, albeit a “book entry” only. As for Dale’s advice, page 165 in the Q&A makes this statement.
TerryW – I will be looking at a hybrid. Couple of questions you may be able to answer:
1. I am about to purchase an IP (as stated earlier), can I start the process of acquiring funds etc before the hybrid is set up (according to Trust Magic pp117 I can borrow money in my own name, use this money to buy units in the trust, then use the cash to buy the property).
2. How quick does it take to set up a hybrid? Can it be done online somehow?
Regards
Paul
Originally posted by cajun:only assets at this time are shares which I understand I have to distribute the dividends regardless, albeit a “book entry” only
I assume you mean the shares are in the trust, not the company. Based on my understanding, a trust must distribute all profits each year otherwise the trust will get taxed at the top marginal rate (I think it is).
So a dividend into the trust would need to be distributed to someone, unless offset against other losses (which you wouldn’t have yet).
I believe this would be the case in any type of trust, including a hybrid or unit trust. However, you should ask a professional advisor to be certain of the details.
GP
Originally posted by cajun:1. I am about to purchase an IP (as stated earlier), can I start the process of acquiring funds etc before the hybrid is set up (according to Trust Magic pp117 I can borrow money in my own name, use this money to buy units in the trust, then use the cash to buy the property).
Paul,
A copy of the Trust Deeds will be required by the lending institution before formal approval of the loan facility is granted,
However you might receive conditional approval subject to submission of the Trust Deeds,Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VICTORIAPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
Hi Cajun,
Yes, you can add as many trusts as you like with the same trustee acting as the common trustee.
You can organise a trust online. Go to lawcentral.com.au
go to “create a legal document”
They quote $275 for a discretionary and $330 for a unit (hybrid) trust.
However it may be best to get some proper advise from an accountant or solicitor who is au fait with this sort of thing to make sure your trust is capable of doing exactly what you want it to do ( ie .. buy property, borrow money, etc)Another place to look is taxlegal.com.au
go to “publications” and then do a search on “hybrid trusts”
You should come up with a doc called “Trusts in Structuring” which is very informative.Good Luck,,,
KP
Thanks for passing that on KP,
A good resource with informative publications regarding Trust structures etc.
RegardsSteven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VICTORIAPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
Hi Cajun
I would be wary of setting up a Hybrid trust online. It would be best to go to an accountant at first.
If you are looking for a property, you could get a loan approval in your name only and latter provide the copy of the deed. Make sure yu tell them up front that is what you are doing as some banks won’t lend for trusts.
But whatout, as some states require the trust to be actually setup before you sign the contracts – otherwise you could have to pay double stamp duty. Talk to your solicitor about this.
Terryw
Discover Home Loans
North Sydney
[email protected]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
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