Ed Chan

OIC Red,
Now I understand.
They probably don’t want to give any secrets away unless you proceed with them.
He did recommend you do a $250 financial health check ( download the forms from their website) from which they would come up with some recommendations.

He also said they do work in with other accountants to assist them, but using Chan/Naylor trust structure.

Cata: a healthy scepticism is probably a good thing….

I have spoken to three different ‘experts’ on trusts and structures, and now have three different opionions.
Now I’m confused.

kp

All this must be taken into account when any structuring is to be done. It is nothing new, but my only question is the land tax issue as I can only see that from a unit trust(maybe I am missing something as I have not put to much time into Ed Chan’s trust).

Everything that you have mentioned can be achieved without including a unit trust.

CATA
Asset Protection Specialist
[email protected]

WILL…..when theres a will, theres a wae….[blink][biggrin]

kp

As Michael Y mentioned earlier, apparently theres more to it than the obvious.
This from Michael’s monthly newsletter:

SHOULD A PROPERTY BE HELD IN A TRUST? By Ed Chan, Accountant

The word “TRUSTS” is used very loosely by some people and when someone says to me that one should or should not use a Trust its like saying should you or should you not use a ‘MOTOR VEHICLE.”

The answer is simply what are you trying to do?

For example when someone says to me that you should not use a Trust because it traps the negative gearing inside a Trust and cannot offset the interest against your salary than they are referring to a Family or Discretionary Trust. Well that’s only because you used the WRONG Trust.

It’s a bit like saying that Motor Vehicles cannot carry rubbish to the tip. Well a truck can take rubbish to the tip. It simply depends on what type of Motor Vehicle you are talking about.

This is the same in the use of Trusts. There are dozens of different types of TRUSTS and they all do different things. Just like there are all different types of motor vehicles and they all do different things.

You really need to understand what they all are and what they are used for. The common types of Trusts that people are familiar with are Discretionary or Family Trusts and the less familiar ones are Unit Trust and Hybrid Trusts. There are dozens of other less known Trusts such as Testamentary Trusts, Absolutely Entitled Trusts, Bare Trusts, Blind Trusts, etc. They are all used for different things.

For example a Superannuation Fund is a Trust but is not a variant of either a Unit, Discretionary or Hybrid Trust.

It’s in fact a whole new type of a Trust which has its own rules but has none of the traits of the other Trusts.

There is our “Property Investors Trust” which is built specifically for properties taking into account the different land tax rules around the different states. It also allows the rental to be passed onto the spouse who is on the lower tax rate before the property becomes positively geared on its own accord.

For example our Property Investors Trust allows us to distribute a portion of the rental over time to the wife (if she is on a lower tax rate) and hence take advantage of her lower rates of tax without triggering capital gains tax nor stamp duty and at the same time increasing the negative gearing benefits to the husband (assuming he is on the higher tax rate). It also allows properties in NSW to retain its land tax threshold.

Our “Property Investors Trust” is the prefect Trust and the only Trust to be used for properties.

The reason why we have trade marked it, is because we have spent many years (over 16 years) and many thousands of dollars to perfect this structure for properties.

The Unit/Discretionary/Hybrid Trusts are STANDARD Trusts which accountants and solicitors have tried to ADAPT to properties but they were not initially developed to hold properties in hence they all have some disadvantages or short comings when used for properties e.g. Discretionary Trusts are bad for negatively geared properties or to hold properties in, in NSW as they lose their land tax thresholds.

The Unit Trust loses its cost base after the depreciation of the property is passed through to the unit holder and a Hybrid Trust is unusable for properties in NSW as they lose their land tax threshold unlike a Unit Trust which retains its land tax threshold in NSW and so on.

These standard Trusts were set up for use in other things such as Businesses and to protect assets such as shares etc but when adapted to property had their shortcomings.

Our Property Investors Trust was developed JUST FOR PROPERTIES and in fact we do not use them to hold other assets in as they are NOT developed for this.

We recommend the usual Unit/Discretionary/Hybrid Trust to hold other assets other than property. Again it simply depends on what you are trying to do as they all do different things.

For example if you ran a service business such as a Cleaning Business its always best to run that through a Discretionary Trust with a Company as a Trustee because it gives you asset protection and allows you to distribute the income to anyone you want who maybe on a lower tax bracket to yourself. However if you were planning to negative gear some shares or property you simply would not use this type of a Trust as it traps the losses in the Trust.

A Discretionary Trust is not good for a business if that business was made up of a few different people/principles hence a Company or a Unit Trust maybe better to help identify the different ownership percentages.

We never purchase a property in a COMPANY because when you come to sell the property you miss out on the 50% exemption for capital gains tax and also if the property was negatively geared the losses would also be trapped inside a Company.

You would however use a company to run a business through because a Company has the advantage of limited Liability i.e. has a limited amount of asset protection but it allows you to retain the profits in the Company and limit your tax rate to 30%.

The tax that is paid by a Company is not LOST as it is if the tax was paid by an individual because it simply goes into a “holding account” called a Franking Account where sometime in the future you can withdraw those funds (like a pension) totally tax free as long as your income at that time is taxed at 30%. In fact if your tax rate was under 30% e.g. say 20% you would receive a 10% refund.

You would not however put the shareholders of that company as yourself. We would hold the shares in the company under a Discretionary Trust to protect your assets since shares in a Company is considered assets and someone could try and sue you to get at them.

You can see that it’s a mine field and one should get proper advice BEFORE one purchases anything let alone a property as it’s extremely expensive to try and unwind a structure that was incorrectly set up.

An example is a property bought in the wrong entity would require another payment of stamp duty e.g. average property of $500,000 attracts stamp duty of around $25,000. You would be required to pay this twice if you tried to fix the problem.

My Best Advice to people is to TAKE ADVICE BEFORE the transaction and not AFTER the transaction. An ounce of prevention is…………………..you know the rest.

This article was contributed by Ed Chan. Ed Chan & Tony Melvin are authors of “How to Legally Reduce Your Tax … Without Losing Any Money!” It’s the best book I have read to explain complicated accounting principals in easy to understand language. You can order it online at: – http://www.knowledgecentre.net.au/

I noticed that Asset Protection was not mentioned.

For me, all comments point to a unit trust of some sort. Maybe a Hybrid unit trust as I said before. All I can say is that if you are going with this Property Investor Trust, then ask Ed Chan about maintence costs as he knows this structure best(if it is a special trust that is, I still have unanswered questions).

Just my opinion

CATA
Asset Protection Specialist
[email protected]

I’m with high flyer, I recon Ed’s taking a unit and a hybrid trust combo and dressing it up as one trust. I’ve thought so since the first time a friend of mine went to one of his seminars almost a year ago, but nobody seems to be able to tell me (Ed least of all).

If this was indeed the case I would find it rather disappointing since people like Chris Batten (www.chrisbatten.com.au) have been using this structure openly for a long time. Just read their “poison property” page. The link is in the bottom right hand corner of the homepage. Here is some text from there:

“How to avoid poison your property

Don’t acquire your property in your own name, in a discretionary trust, company or jointly with your spouse. To avoid the above problems the residential investment property would have to be acquired in a unit trust. The unitholder of the unit trust does not have to be your superfund. It could be a hybrid discretionary trust for negative gearing purposes, whereby at some time in the future your superfund will become involved.”

That’s what I like about Chris Batten, they are not marketing any secret magic tricks, just good solid accounting. If they were based in Melbourne I would be using them already.

There are a lot of other pages on their website with information that I though “damn, about time someone just told me that straight up”. Have a read if you have time, and let me know what you think.

Seriously though, for someone like me who feel the need to get to the bottom of things there is nothing more frustrating than being told by an ‘expert’ in the field: “All that is wrong, we know how it should be done, but we’re not going to tell you. Here, take a financial health check.”.

My friend took their health check and they still won’t tell him how the property investor’s trust works, so if you’re reaching for your cheque book you should probably change your mind now

Cheers,
Carl

Greetings All,
One other thing to come from the Sunday meeting where a representative from Chan and Naylor (also spruiking their own special “Property Investing Trust” ) gave a presentation was that it is superfluous to use a company as a trustee. The spokesperson (also one of the partners in the firm) claimed that a personal trustee is quite okay and offers the same protection.. Seems just more fuel for the “confusion fire” regarding trusts and the like.
COMMENTS ????
Cheers len

I must say I’m not really impressed with this new “Property Trust”. And to me it seems like there is more marketing than actual structuring. For example there is zero info about it (apart from some people telling us how good it is), but there seems to of been a big focus on tradmarking the name “Property Investment Trust” (which costs a grand total of $450 if your not using a lawyer, etc).

Im not saying that this new “Property Investment Trust” is good or bad, but of the little bits that get out (for example not having a company as head of a trust) and zero info. provided (even a vague general idea would be better than nothing) I would NOT throw caution to the wind and ‘try out’ this ‘new’ type of trust, even with glowing words- “Property Investors Trust” is the prefect Trust and the only Trust to be used for properties”.

My guess is similar to that of CATA/carl_vic but I liked to think there is something more funky – perhaps having two types of units… (though I think carl_vic hit the nail on the head).

FFComm

It concerns me that the representatives from the firm do not seem willing to discuss the details of the trust and how it works. I have no personal experience with this “new” type of trust but if a client should always be informed of the advantages and disadvantages of any structure. It is a clien’t right and a professionals duty to explain how it works, ongoing compliance costs and make the client as well informed as possible.

I deal frequently with Chris Batten and his team at MGS and they have nothing to hide. In fact for a nominal fee the practitioner has a wide range of resources available to them and Chris Balalovski in particular has been fantastic in dealing with issues or questions I have had in the past. They always lay out the pros and cons of their structures and nothing is “hidden”

I’d be interested in hearing more as well. Doesn’t Ed realise that there a whole bunch of accountants and lawyers out there who are currently trying to get further details. Speaking to Chris on Friday he has also had another request to find out more details. It will be interesting to see what his research unvails.

Purchasing property in a unit trust (not a hybrid unit trust) does have advantages in that it can be transferred to your SMSF at a later stage and unit trusts are also entitled to the land tax thresholds as oppossed to trusts (such as hybrid trusts) which have a discretionary component. This can result in a huge saving in NSW on land tax. A structure we use, as advised by Chris Batten and other leading tax specialists, is to have all the units in the unit trust owned by a hybrid discretionary trust. This hybrid discretionary trust then issues special income units to the individual seeking the negative gearing benefits. This is certainly not a new concept. Unfortunately most accountants are just uneducated on trusts and how they should be used to structure your affairs. There are no “secrets” that the rich have. They have well educated advisors that provide them with relevant and up-to-date advice. For $99 for 3 months you can subscribe to Chris Batten’s website and probably gain more knowledge than from an overpriced $1,000 – $2,000 seminar. I have no problem at all with Ed charging $250 for his consultations. That is what he is selling his time. But if a client specifically asks for advice on something he should be willing to provide this to the client. Obviously an additional fee will apply as it will involve his time in compiling and writing the report for the client but this is normal professional practice.

Maybe a few of us from the forum can all chip in together and request the firm to provide us in writing details of the trust, the advantages and disadvantages of the structure and practically how it works. All professionals should be willing to provide their advice in writing. What do u think ?