Well, I’ve just read Margaret Lomas’ latest book – “The Truth about Positive Cash-Flow Property”. In it she slams hybrid trusts (and just about any other kind of trust) as just adding to accountants’ coffers.
In regards to hybrid trusts (the kind of trust that I was beginning to see as the one for hubby and me), she’s basically saying it’s just another tax dodging loophole that the government will eventually close, like it’s closed all similar loopholes.
She goes on to warn that not only is setting up a trust wasting money, it is also making things unnecessarily tangled, which could cause hassles down the track.
She says to adhere to the KISS principal with deciding on structure, and then goes on to reiterate her views on whose name to put it in (basically she’s just saying to think longterm when deciding – but to me it’s alot of crystal ball gazing guesswork).
I’d also thought that Ed Chan and co’s “Property Investor Trust” might be the go – until I read it being repeatedly slammed (by those who apparently should know what they’re talking about) on Jan Somers’ site.
We don’t know who or what to believe anymore in regards to structure. All my hubby and I want to do is to accumulate some properties (10-12) over the next 10-15 years that we’re both working (he fulltime, me part-time), and then use this portfolio as our retirement nest egg.
We already have two IPs, bought well below market value. We have considerable equity in our PPOR. We know what to buy, we know how to buy well (and we understand the need for diversity in investment, so have shares and super too). Some properties will be negatively geared at the start, some positive (with tax refunds) from the start.
You would think it would be all systems go – But we’re paralysed by this structuring nightmare. Anyone who can shed some light on this WE’RE ALL EARS – at this rate, by the time we work it out we’re going to have missed the next boom!
And please don’t tell us to find an accountant who understands these things – such a creature doesn’t seem to exist in Adelaide. Should we find someone interstate? If so, independent recommendations are most welcome.
Carlin
Hi Carlin,
It’s a pretty interesting journey, looking so far into the crystle ball of the future to try and predict what our needs are. I too have been paralysed by analysis regarding structuring – and I have not even started investing!! It is hard to know who to take advice from, especially when they all seem so different on the same issues.
I have a ‘wall of product’, advising me on all manner of aspects of investing – and as such, am probably a well informed non-investor (so far). I think I’ve probably come to realise that one has to trust one’s judgement in your own decision. I don’t know that I can come to know all that I need to know about each option by reading everything. As you have discovered – unless we visit many accountants, it is unlikely we can affirm all of our knowledge either. I’ve come to the decision about my structure by looking at what drove me to wanting to structure differently (i.e., tax structuring, liability issues, family involvement, superannuation, etc) and then prioritised them. Then I drew up a pros and cons for each option to see which structure met my main priorities. When i ended up with two of my favourites, I then popped off to my new accountant and asked questions and asked for an opinion.
In preparation to commence investing soon, I have finally found some peace with the whole ‘structuring’ thing. I think it seem to come down to understanding that one structure is not likely to meet all of my needs, but hopefully the most important ones. AND probably the most important part, was to believe I could make my own decision based on my own knowledge of my own needs now and for the future, and my own knowledge about the options- and check the details / assumptions I believed were at play about my chosen structuring options – were accurate (hence the final check with the accountant).
Not sure my journey is helpful – but sometimes it’s nice to hear others are going through the same frustrations with all the ‘expert’ advice. The crazyiness may come from our obsession with the detail, hoping this would make our decision for us?
Anyway, I’m logging of and hope the ‘sharing’ helps.
cheers
Cherie[grad]
Horses for Courses is the best answer I think anyone can give you in relation to this. Now I have to ask – Are the people who are knocking these trusts actually investing or are they working up the courage to think about it?
Personally I am looking at setting up a trust in order to protect my assets. Any potential Taxation benefits which arise are great, but not the ultimate motivation behind the action. Look at it this way – Some Feral Inbred Criminal breaks into one of your Properties. they cut themselves on the window on the way in, trash the joint, bleed heavily and then pass out whilst walking down the front stairs of your two story property. They then sue you because you didn’t have safety glass and they almost bled to death as a result of the cuts. Personally I’d think it’s a shame they didn’t, but the reality is Legally they may have cause for a suit. You could potentially end up losing your assets. Now I know my example is a bit far fetched, but if you can’t give someone a flogging when you catch them inside your home uninvited (and carrying your DVD player) then we know whos going to win the suit don’t we.
Look for the best Asset Protection Structure you can find and accept whatever Taxation Benefits (If any) as a bonus…
Oh and try Gatherum Goss in Melbourne for your accounting…
Stuart Milne
Non-Conforming Specialist
READY Mortgages
http://www.readymortgages.com.au
[email protected]
Mob: 0404 056 055Hi Carlin
Seems like you have been thinking about structures for ages!
I haven’t read any of Margaret Lomas’ books, but from what I have heard and seen, her company targets mum and dad investors. ie the average investor. If you want to be an average investor, then follow her advice, if you want to be rich, you had better do your own research including getting the advice of experts in structuring. She is probably not a solicitor nor accountant.
I am not sure what her objections would be. But with regard to the govt changing the rules, this could happen, but so could many things. We can only go on what the current situation is, and what we think is likely to happen.
If the ATO were to disallow the claiming of interest against personal income for a hybrid trust, then you would still be left with a discretionary trust. Still much better than holding assets in your own name.
Other than tax benefits, there are also many other benefits of a trust, but few disadvatages (extra land tax and extra running costs).
Just keep on reading as much as you can. No one is going to understand your situation better than yourself.
Terryw
Discover Home Loans
Parramatta
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nothing to do with your question…but just have to say “hear ye! Hear ye!” to your comments Stuart on what “should” happen to a lowly thief. Had a good ol’ laugh at that.[biggrin] Although I dont think too many thieves would live to actually get to court, if they were caught…..[biggrin]
hi carlin
I don’t write books more do I run property investing seminars.
I do use a trust and company structure for each of my development sites and my investment structure is made up of multipul mini company and trust structures.
at the end of the day after you have read lots of bookds and gone to lots of seminars the best way for me is to setup a structure that you are comfortable with and meets your needs.
you do need an accountant to explain these structure to you and one that understands trusts and there will be one or two in adelaide you have to find them.
why because they are being paid for that advice a bulliten board or a book arn’t.
I could write a book on flying a 747 to the moon I don’t have to be a pilot nor do I need a plane to do it I am not a great lover of alot of books out there in book world hence I don’t buy them.
investing not just in property but any investing requires time and energy to research this you have done so you will at some stage have to pay for advice and that maybe at the stage you are now.
there are a couple of trust people on this forum cata and coastymike and there are alot of web sites on trusts and who sets them up you just have to trawl them and find one thats office is in adelaide.
I can’t help on the structure.
why
1. because they some thing that need to be setup to what your requirements are.
2. I am not qualified to give that advice(that’s not to say I don’t know most trusts and what there used for)
3.a bulliten board is for general information and for me I would never NEVER never use information on a bulliten board as investment advice it is by its nature general advice and a structure need to be setup by yourself with professional advicehere to help
If you want to get involved in some of the projects I’m involved in email to [email protected]Hey carlin!
There is a product created by steve mcknight and his partners called “wealth guardian” which gives you a good understanding of trusts and how it can protect your assets. Maybe you can look into investing into one which could save you headaches and pain later down the road.
It’s available on this website[biggrin]
markWhat is your investment stratagy Carlin?
You should get some better answers if you share this info. Your investments will determin your structure to some extent.CATA
Asset Protection Specialist
[email protected]Hi Carlin
I’d suggest you read up on the other side of the argument. I agree with Mark, Steve’s Wealth Guardian is great. Another great small, easy read on this subject is “How to Legally Reduce Your Tax”. $25 at your local bookstore. I really enjoyed it.
Good luck.
Cheers, Paul
Paul & Karen Dobson
negative2positive
Turn your negatively geared property into positive cashflow.
Phone: (02) 4984 9540Talk to us about Wrap Training Joint Ventures.
Paul Dobson | Vendor Finance Institute
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Email Me | Phone MeAn alternative way to finance your home.
I’m with Lomas on this one, whats more important, building wealth or building a complex legal structure to protect yourself from something which might never happen? Have you ever known anyone who actually had this happen to them, apart from a few cases on the news a few years back?
If you know how to build wealth, then lose it all to a situation like this, you should be able to build it up again anyhow [biggrin] The only thing I would consider is some kind of insurance against this, but only for the right price. Doesn’t a home insurance or landlords insurance policy give some protection for this kind of thing?
Overall, I’d say keep the main thing the main thing. What is it that people love about legal instruments and being able to say “all my assets are in a holding company or trust” anyway?
~Chris
Hi Chris
A hypothetical. You’ve built up a great protfolio and you’re, rightfully, happy with the asset base you’ve been able to build for your family.
You’re driving along one day, get dazzled, run off the road and into a shop. Nobody is hurt but the ensuing fire destroys millions of dollars worth of property
You had been conscious of not drink driving but your blood alchohol level is just over, i.e. 0.7.
The law charges you with some offences but probably because no one was injured you don’t go to gaol.
The property owners then sue you in a civil action for millions. They win. Because all your assets are in your name, you lose the family home, the property portfolio, the lot.
If these assets were owned by a trust or company (that you control) it’s quite likely that your assets would be safe.
You can’t by an insurance policy to save you from all the crazy law suits that are out there today. However there is a very effective “insurance policy” and that’s is the right structuring of your assets.
Personally I think it’s pretty cheap insurance to set up, e.g. a trust with a corpoate trustee. It cost us about $2,500, was easy and quick and is easy to run. And just as you have to pay for renewing your insurance policy each year, we pay about $1,000 a year to our accountant to keep the structure in good shape.
And last but not least. Go find some really wealthy individuals and and see if you can find any of them that own their assets in their own names.
Cheers, Paul
Paul & Karen Dobson
negative2positive
Turn your negatively geared property into positive cashflow.
Phone: (02) 4984 9540Talk to us about Wrap Training Joint Ventures.
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
I can’t see what all the fuss is about. You can set up a trust from as little as $275 – a good trust. Land tax may be a little bit extra, a $1000 or so per year. You can do your own tax return, so why not set up a trust??
Worse case scenario is you pay a bit more land tax, but this is offset by income tax savings, CGT savings, asset protection, estate planning advantages etc etc
Terryw
Discover Home Loans
Parramatta
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Terry,
I’m at the stage now where I don’t try to convince anyone anymore. I simply put forward the facts and let them decide. Strangely enough all of my high net worth clients (client worth over $5M in my opinion) all operate through a variety of trust structures for a variety of reasons.
If you don’t think trusts are useful then don’t use one. Noone is forcing anyone to use them.
Originally posted by chrisconuts:I’m with Lomas on this one, whats more important, building wealth or building a complex legal structure to protect yourself from something which might never happen? Have you ever known anyone who actually had this happen to them, apart from a few cases on the news a few years back?
If you know how to build wealth, then lose it all to a situation like this, you should be able to build it up again anyhow [biggrin] The only thing I would consider is some kind of insurance against this, but only for the right price. Doesn’t a home insurance or landlords insurance policy give some protection for this kind of thing?
Overall, I’d say keep the main thing the main thing. What is it that people love about legal instruments and being able to say “all my assets are in a holding company or trust” anyway?
~Chris
I think that maybe as with Lomas you may not be looking at the BIG picture and concentrating on just one aspect..Different typesof structures have many and varied benefits other than the obvious..
Was it Kerry Packer who said “Own Nothing..Control Everything” ?
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorCoastymike and Redwing have hit the nail on the head.
There is nothing saying that you must use a trust or a company.
My personal opinion is that if you decide to purchase in your own name, then you are leaving your self exposed to a range of possible problems eg. lawsuits, tax ect.But do your own due dilligence and make an informed decision for yourself. Whether is proves to be the correct decision only time will tell, but at least you would have made a decision.
CATA
Asset Protection Specialist
[email protected]Hi All,
Many thanks for the responses. I have read Wealth Guardian and How to legally reduce your tax (the latter was the one where they’re pushing their Property Investor Trusts). Before anyone labels me as the epitome of analysis paralysis, I assure you we ARE going to act, and in the near future! It’s just that I had the impression that Lomas was well respected and therefore didn’t think I should just discount her strongly negative opinion of HDTs.
Grossrealisation – I’m just using this bulletin board (and books) to get some knowledge so that when I do sit down with an accountant or solicitor or whoever I have a decent idea about what we’re talking about. But, yes, I will now trawl the internet for an accountant in Adelaide who knows about structuring.
TerryW – you suggest there’s way more +ves than –ves with a trust. Some negatives you mentioned were extra land tax and running costs, but what about some lenders not being happy to lend to a trust – has anyone had experience of this? We would like to have a decent stable of lenders to choose from when we refinance.
CATA – you asked what our strategy is. Here’s the situation:
We’re a couple of DINKS – 40 and 44. Work full-time in fields unlikely to attract litigation (yes, I know all the “but what if†arguments – but I’m just saying we’re not obvious targets.)
Both now in the second to top income bracket following tonight’s budget, both in the same public service super fund (not many $$ in mine!).Hubby wants to work until retirement about 13 years away, but would like to go part-time in 8-10 years.
I want to go part-time within 2 years and completely give up the day job within 5 years, with the goal of managing a property portfolio and also doing some residential developments down the track. (have renovated three houses so far, including contracting work on a major reno)
I currently manage our two investment properties – both negatively geared, but one is almost positive (in my name) and the other should be positive within 5-6 years (in hubby’s name). Both with interest-only loans. May sell the property that’s in my name once I go part-time, to free up some cash.
PPOR with about $300,000 equity in it – is currently security for both investment properties. Additional income from studio rented periodically at back of PPOR.
All properties are with the one lender.
Primary goal with structuring is flexibility with income distribution so that we’re not handicapped when negative properties turn positive. Also perhaps the ability to transfer funds into our super funds?
Do I want to be rich? Well, rich enough to finish renovating our PPOR, rich enough to indulge my love of overseas travel again, rich enough to buy a place by the sea, rich enough to have time to spend how I want to, rich enough not to be on the treadmill I feel like I’m on now, and eventually rich enough to put more into the causes and people I believe in.
Thanks again everyone for contributing your views. I’m sure I’m not the only one who’s benefitted.
Cheers,
CarlinPrimary goal with structuring is flexibility with income distribution so that we’re not handicapped when negative properties turn positive. Also perhaps the ability to transfer funds into our super funds?Is this the Important bit Carlin?
Once you know what you want, maybe you then know what to look for in a structure or strategy..
Maybe Look at your End Goal and work backwards?
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorCarlin
Off the top of my head, I cannot think of one lender that won’t lend for trusts.
Terryw
Discover Home Loans
Parramatta
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Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Redwing – yes, that probably does sum up the main objective, tho given that we’re DINKS the income can only be distributed between we two.
Have had a recommendation of an accountant, so will be calling him tomorrow.Terry – Has the situation changed? A previous post of yours from July 1, 2004 (see below) suggested that some banks wouldn’t lend to trusts. Perhaps there are now so many trusts around that banks fear missing out on business if they don’t become more flexible – could that be the situation?
thanks,
CarlinHi 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 SydneyYes before some lenders didn’t want to lend for low doc loans where a trust was involved. But this has changed.
ps. I make some terrible spelling and grammatical mistakes don’t I!
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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