zen1
The Home is not included in the trust but there are a few different ways to protect the PPR depending on what you want to do in the future. I am happy to talk to anyone about this but I need some background info and what you plan to do in the future. I also prefer not to explain this in a public fourm as there have been some stratagies um lets say “borrowed” and I am keen for this not to be one of them.But some food for thaught, it involves buying another IP or using some inventive thinking with morgages and trusts.
Send me an e-mail if you want to talk.
Look forward to it.
CataHi gang,
Over time I have heard of a few strategies for protecting the family home using trust structures. I’m going from memory here so my recollection and understanding may possibly be incorrect. OF course none of this is advice.
1. Use your PPOR as security for purchase of IP in trust. Basically just uses cross collaterisation which normally most experienced investors would avoid but it is useful in this case.
2. Borrow against PPOR and gift funds to trust. The trust takes a registered mortgage over the PPOR and loans the funds back to PPOR owner.
3. PPOR purchased in own name but funds borrowed from trust. The trust borrows funds from bank using PPOR as security. Bank has 1st mortgage and trust has 2nd mortgage over PPOR.
In response to a previous suggestion of using a standard discretionary trust for negative gearing I’m guessing that some of the above ideas could also be used except instead of purchasing a PPOR it would be an IP. But that idea only just now popped into my head and I haven’t really thought much about it.
I would be interested in others ideas.
Cheers – Gordon
You have done some research I see Gordon.
Something to think about, PPOR in my name, gift funds to trust for deposit on IP. Trust borrows funds for IP and takes security over PPOR as well as IP. This also negates the 6/24 month bankruptcy law.
2 houses, 2 loans, lots of security for bank.CATA
Hi Cata,
Thanks for providing further food for thought.
Although I’m only a layperson I find trusts interesting beasts.
I personally don’t like gifing funds to a trust. Fortunately my wife is the risk person and I have very minimal exposure to the usual risks. Hence loans to the trust are in my name.
The challenge with owning property in one’s own name whilst trying to protect it using a trust structure seems to be how to deal with its ongoing capital appreciation.
To date we haven’t done anything fancy with our Disc trust and HDT. We do have one investment property still exposed to some business risk as it was purchased in my wife’s name prior to setting up our trusts. To date all we have done is keep the original loan as interest only and have established a LOC on subsequent growth with these funds being used to partially fund purchase of an investment property by the HDT. However no doubt more could be done to protect this asset with some of the strategies mentioned as possibilities.
Regards – Gordon
Gordon
Why do you not like gifting funds to your trust? I have not come across anyone else you says this.
CATA
Asset Protection Specialist
[email protected]Hi Cata,
If my understanding is correct once I gift funds to the trust I would have to pay tax on these funds should I require them to be permanently returned to me at some time in the future. Of course I suppose the trust could loan the funds back to me as an interest free loan. This is providing that the Gov’t doesn’t legislate later down the track to enforce formal loan arrangements. Due to my concerns about this I prefer to loan rather than gift. My risk as opposed to my wife is very low so I feel comfortable having loans to the trust against my name.
Cata, I would appreciate your views on this.
Cheers – Gordon
In terms of dealing with losses in the Hybrid trust due to depreciation expenses on the property, I think have a way to get around this.
Because I run a business which has been setup as a Hybrid Trust, I can set up my property investment trust as a beneficiery of the business trust. Basically I can then have some income on PAYG (which is important in helping to prove my income) and some income will be in the form of a trust distribution. As long as the income from the trust distribution equals the losses in the trust due to depreciation, then no tax is payable on that. If there is any money left over, that can then be distributed to me.
For those that are lucky enough to recieve some income without going through PAYG, this could be a solution. Does anyone have any comments on this?
Another way to receive income into the trust directly would be to contract our your services through the trust. Maybe this can be organised with your employer, ie 20% of your salary is paid to your trust because your trust provides an invoice for services. Someone should check to make sure that is legal though, but I think because the invoice is in the name of the trust, it should be fine.
I would still like to know how someone could deal with losses in the trust when they don’t have this option availiable to them. Can anyone suggest anything here?
Quote:Originally posted by austini:Hi Cata,
If my understanding is correct once I gift funds to the trust I would have to pay tax on these funds should I require them to be permanently returned to me at some time in the future. Of course I suppose the trust could loan the funds back to me as an interest free loan. This is providing that the Gov’t doesn’t legislate later down the track to enforce formal loan arrangements.
Hi Gordon
If you gift funds to a trust which you are a benificary of, the trust can distribute funds as the trustee wants. So you can get money as a benificary of the trust.
As for the loan from the trust,what if the loan aggrement states that repayments are only made when the trust calls for them? How can the govt. enforce loan repayments if the govt. is not part of the legal contract?CATA
Asset Protection Specialist
[email protected]Contributed Capital to a non fixed trust includes amounts settled on or contributed to the trust.
To the extent that the distribution exceeds the the amount of available profits the distribution is treated as being a return of contributed capital.
A return of contributed capital is treated under the capital gains tax rules. The amount of returned capital will reduce the cost base of the members interest in the trust. If there is no cost base or the cost base is reduced to zero, a taxable capital gain will arise.
A return of contributed capital will result in CGT Event E4 ocurring. You will need to discuss any return of contributed capital with your advisor as it will possible result in a CGT event.
Once you have contributed capital (e.g. gifted money to a non fixed trust) any return of such capital to any of the beneficiaries will result in a CGT Event E4. Proceed with caution.
All vaild pionts to consider
CATA
Asset Protection Specialist
[email protected]Once you have contributed capital (e.g. gifted money to a non fixed trust) any return of such capital to any of the beneficiaries will result in a CGT Event E4. Proceed with caution.That is basically what I had understood to be the case. Given that only my wife has to contend with business risk we ensure that she has no loans to the trust. However given that I’m exposed to very minimal risk (no business risk for sure) I have been comfortable having loans to the trust against my name.
Not perfect I know but with all these things there are tradeoffs no matter which path you take.
Thanks again for the info.
Cheers – Gordon
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