I have heard mention of some people using not a single HDT to hold property but rather a HDT in combination with other types of trusts. Could somebody with experience of this please fill me in with some info on the commonly used combinations, and the benifits and drawbacks of each?
Cheers
A trust can be sued but if you have different trusts for property, investments and business this limits liability. The combinations are limitless. Some people like one investment per trust. I know of aprox 60 for one couple.
CATA
Asset Protection Specialist
[email protected][blink]Wow..60..at $2,500-$3,000 a *pop* for a Trust?
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorNot a company and trust, just a trust. Charging $2500 – $3000 for just a trust is to much.
CATA
Asset Protection Specialist
[email protected]I set up a company AND a unit trust in the last 10 days through an accountant for $1200 total. You shouldn’t be paying any more than that.
Hi P_I
I would not agree with this either as it depends on the deeds and what you want them to do. Sometimes spending a little more will allow you to have more options in the future.
A unit trust IMOP is no good for asset protection as the units have a dollar value.CATA
Asset Protection Specialist
[email protected]I meant more in relation to holding the property itself, where I’ve heard of people using a hybrid to achieve the negative gearing, yet the property might be owned in a separate trust (not hybrid) where the hybrid may in turn have bought units. The place I read it was really dealing with a different issue altogether so the part about the trust structures was pretty vague. Personally I haven’t read anything to indicate that you would really need (or coule benefit from) having more than a single hybrit which owns the property, and where you then buy units. Any comments?
Interesting.
The house would have to be held in either a unit trust(I would not do this) or a hybrid, with units held by another trust eg. discretionary or hybrid trust. I can’t see the benefit (you can have a company as a beneficiary and cap your tax at 30% in most cases)
What was the issue being discussed?[hmm]
CATA
Asset Protection Specialist
[email protected]Some of my clients do have an additional trust at the top being a unit trust. The units are then issued to the hybrid discretionary trust and special income units issued to the appropriate individuals. The benefits of this structure, although slightly more complex, is to allow the asset to be transferred to a SMSF at a later stage (note if residential property is held in a HDT then it cannot be transferred to your SMSF). The other advantage is with respect to possible stamp duty savings.
With respect to costs if someone is charging $1,200 then they are loosing money. ASIC charges $800 for registration fees and a lawyer will be charging around $400 – $600 for the trust deed. If the accountant is merely copying past deeds and not preparing new ones by a qualified lawyer then they are in breach of copyright. Accountants are not allowed to prepare legal deeds. I think $2,500 for establishing a company AND a trust (excluding stamping costs) is quite reasonable and comparative for providing advice re structuring, establishing the structures, applying for tax file numbers and completing the appropriate resolutions. Did the accountant also consult with you on the structure, apply for appropriate registrations, deal with the appropriate resolutions, etc. If they did then I would argue they made nothing on setting up the structure for you. Id be concerned about an accountant who establishes something for nothing. In my view they are either poor (i mean if they keep doing things for cost then how will they ever make money) or they make it up through higher ongoing accounting fees for preparing the accounts, etc. Ive seen some trusts setup for $400 and the ongoing compliance costs are around $1,200 – $1,500 per annum (with one investment property in them). This can be done for around $500 so you might get caught out later on. If however they have decided to give their time away then good on them. Im not a registered charity so wouldnt even deal with someone who wanted to setup such a structure for $1,200.
Why would you want to hold property in a unit trust with all the units being held by the individual? It provides no flexibility with respect to distributions of profits when the investment becomes positively geared. It might be good while negative gearing but what if the person obtaining the negative gearing benefits looses their income and you want the partner to then gain the benefits. If you transfer the units then CGT will payable on the difference between the market value and cost base of the units. This can be effectively managed through the use of HDT and the issue of special income units. Also as CATA stated it provides poor asset protection. The units could be held by a discretionary trust but then the individual would loose the negative gearing benefits. If however the units were held by a hybrid discretionary trust then its a different matter.
Cata just one issue. A trust cannot be sued. It is the trustee of the trust that is sued in the case of litigation. That is why a corporate trustee is the preferred entity, with the company holding nothing more than issued capital (for two shareholders this would be $2 issued capital) and for greater security a sole director.
Originally posted by coastymike:Some of my clients do have an additional trust at the top being a unit trust. The units are then issued to the hybrid discretionary trust and special income units issued to the appropriate individuals. The benefits of this structure, although slightly more complex, is to allow the asset to be transferred to a SMSF at a later stage (note if residential property is held in a HDT then it cannot be transferred to your SMSF). The other advantage is with respect to possible stamp duty savings.
Hi Coasty, what then are the benefits in having your properties in a SMSF?Would they have to be + Geared as well to be in the SF?With respect to costs if someone is charging $1,200 then they are loosing money. ASIC charges $800 for registration fees and a lawyer will be charging around $400 – $600 for the trust deed. If the accountant is merely copying past deeds and not preparing new ones by a qualified lawyer then they are in breach of copyright. Accountants are not allowed to prepare legal deeds. I think $2,500 for establishing a company AND a trust (excluding stamping costs) is quite reasonable and comparative for providing advice re structuring, establishing the structures, applying for tax file numbers and completing the appropriate resolutions. Did the accountant also consult with you on the structure, apply for appropriate registrations, deal with the appropriate resolutions, etc. If they did then I would argue they made nothing on setting up the structure for you. Id be concerned about an accountant who establishes something for nothing. In my view they are either poor (i mean if they keep doing things for cost then how will they ever make money) or they make it up through higher ongoing accounting fees for preparing the accounts, etc. Ive seen some trusts setup for $400 and the ongoing compliance costs are around $1,200 – $1,500 per annum (with one investment property in them). This can be done for around $500 so you might get caught out later on. If however they have decided to give their time away then good on them. Im not a registered charity so wouldnt even deal with someone who wanted to setup such a structure for $1,200.
Most costs to establish a Trust (HDT) I’ve heard of are around $2,500 -$3,000 and one of $1,900 but with $900 per annum accounting costs..Why would you want to hold property in a unit trust with all the units being held by the individual? It provides no flexibility with respect to distributions of profits when the investment becomes positively geared. It might be good while negative gearing but what if the person obtaining the negative gearing benefits looses their income and you want the partner to then gain the benefits. If you transfer the units then CGT will payable on the difference between the market value and cost base of the units. This can be effectively managed through the use of HDT and the issue of special income units. Also as CATA stated it provides poor asset protection. The units could be held by a discretionary trust but then the individual would loose the negative gearing benefits. If however the units were held by a hybrid discretionary trust then its a different matter.
Cata just one issue. A trust cannot be sued. It is the trustee of the trust that is sued in the case of litigation. That is why a corporate trustee is the preferred entity, with the company holding nothing more than issued capital (for two shareholders this would be $2 issued capital) and for greater security a sole director.
Coasty, what do you mean by holding the issued capital (i.e How is this done within the company?) I presume this would then be the only distribution in the company? Does the director of the company have to be (or be prefered to be) different to the director/appointer of the trust?“Money is a currency, like electricity and it requires momentum to make it Effective”
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CoastyMike..
No one visits us in WA..what was the seminar with Chris Batten like?
Any highlights or points of interest you’d care to share with us?
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorRedwing
I think one of the benefits of using the SMSF would be when you have retired, transferring a trust property to the SMSF and then selling the property, and getting the reduced CGT available to SMSFs.
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
Originally posted by coastymike:Cata just one issue. A trust cannot be sued. It is the trustee of the trust that is sued in the case of litigation. That is why a corporate trustee is the preferred entity, with the company holding nothing more than issued capital (for two shareholders this would be $2 issued capital) and for greater security a sole director.
Hi Coasty
Yes you are correct,sorry a poor choice of words. This is the same way I set up a structure.
A good post though.Redwing
That is expensive for just a Hybrid Trust.
CATA
Asset Protection Specialist
[email protected]Nice one coastymike, that was exactly the answer I was after. In your experience, would each new property be placed in it’s own unit trust or would you reuse each unit trust for a number of properties (to the point where land tax, or exposure to lenders come into play)? Would you use the same company as trustee for both the hybrid and the unit trust(s) or would it be important to use a different trustee?
In relation to land tax calculation, from what I understand, whether or not the land values are compounded depends on whether a number of trusts have the same benificiaries. So if you use a single hybrid and a number of unit trusts the fact that same hybrid bought the units in the unit trusts would then the land tax be calculated as though the propertied were in the same trust? Could you avoid this by having a different hybrid under each unit trust (the unit trusts would then have different benificiaries), or if each property shound be kept in it’s own unit trust perhaps each hybrid should be used with only a couple of unit trusts.
Any comments?
When a prositively geared property has been transferred to a SMSF I’m guessing the profit from rent would also only be taxed at 15%, is that correct?
Hi Cata..
Prices were HDT with PTY LTD as well that people had set up(most people seem to be using this structure).
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow Calculator
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