Hiya,
I am buying properties in a Company/Hybrid Discretionary Trust structure. I heard somewhere that one should only buy around $2 million worth of properties in one Company/Hybrid Discretionary Trust setup. Beyond that, setup another Company/Hybrid Discretionary Trust structure.
Is this true? What are the risks/issues in continuing investments in the existing setup?
Your help will be appreciated..
Sanjiv
******“There is no passion to be found playing small – in settling for a life that is less than the one you are capable of living.†– Nelson Mandela
Hi there
can I say it depends upon who you speak to
I note my accountant suggested it was only necessary to have one trust for the properties purchased, another property investor recommended I have a separate trust for each state that I invest in, though I could have the same trustee company.
I suppose it is an issue of risk management – how much property do you want to put at risk if you are sued – though the trust structure is the best asset protection mechanism. There are attempts by the legislature for example in family law situations and bankruptcy situations to be able to reach beyond the structure to access property – so it really is up to you.Some have a new trust for each property. It all depends on your risk tolerance i guess. As you get more properties in one structure the risk increases. But have multiple structures will cost more to set up and more to maintain.
Terryw
Discover Home Loans
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Thanks raddles and Terry,
Should I setup new trust using the existing trustee company or setup a new trust with a new trustee company?“There is no passion to be found playing small – in settling for a life that is less than the one you are capable of living.†– Nelson Mandela
HI again
you could probably use the same trustee company to start the new trust and if there is any problems down the track – you appoint a new trustee – which can be another company.
The problem with having a new trustee company each time is as Terry says the costs involved. As a bare minimum you will have to pay around $800 to set up – because those are the costs of establishment with ASIC – the Australian Securities and Investment Commission.
There are also the ongoing costs of having Accountants prepare returns, also the ongoing returns you have to lodge with ASIC.
You really have to consider your situation and what risks you face to see whether the costs should be necessarily incurred.
thanksHi Raddies
ASIC fees have been reduced to approx $400 for the formation of a company.
Sanjiv, I think ideally you should have separate trustees, but having one trustee should still be fairly safe. If there is a problem, then it is the trustee that is sued, but usually the trust assets should be safe. You just need a well drafted deed which makes the trustee automatically sacked if it is involved in any legal action, administration etc.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.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
thanks Terry – good to see that a government department drops their costs occasionally – nevertheless realistically most people will spend more than the $400 for lodging the form 201 – because they will either buy a company off the shelf (with inherent costs added) or will buy a company after receiving advice from either an Accountant or Solicitor and there will be their costs for advice.
It would be interesting to see how many people on this forum have actually had personal experience with being sued. We have held property for 18 years and have yet to have a problem with a tenant but do know of friends who did have a tenant sue after she fell down their stairs. Fortunately their insurance company did not deny liability and the matter was settled.
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