trust structure, finance

Hi Swifty

You probably would only need a HDT if you are going to be making a loss. HDTs are a way around the fact that trusts cannot offset losses. So if you are buying cashflow positive property, then it may not matter. If you have a HDT, the costs will be higher (running and set up) and it is harder to get finance, or rather there may be less lenders willing to lend to a HDT than a normal DT.

You should discuss this structure issue with a good accountant.

For your existing loans, if you look at the loan contracts you will find the property that has been used as security for that loan. If it has two properties listed then they are crossed. If one then not.

A way around this in future is to use a separate lender. Or just insist the securities not be cross securitised. The lender should comply with your request. Or better yet, use a broker.

Terryw
Discover Home Loans
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Hi Swift

It depends on whether you intend to be trying to claim some negative gearing benefits. You are unable to do this in a DT but an HDT will be able to pass the deduction up the line to the unit holders.

Main thing as Terry mentions is to uncross the 2 loans you currently have so to enable you to move forward.

Cheers

Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.

Hi Chaps……just for clarity, is a HDT a Hybrid Discretionary Trust? If so, how does this fit into the scheme of things, and are the benefits available thru any other avenue?

warm regards

wilorse[thumbsupanim]

Hi Will

No no other vehicle will give you a combination of Asset protection as well as the benefit of being able to personally claim the interest deductions as a tax benefit.

Cheers

Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.

Hi everyone just a quick question

if a HDT = Hybrid Discretionary Trust

does that mean that DT = Discretionary Trust

what are the major differences between the two

pretty basic but just learning

thanks

Nicko

Comes of pushing the reply button too quickly

Sorry Nico

Yes you are correct with your acronym.

Bare with me and I will try to explain succinctly and simply the difference between the Trusts… There are four possible ways to own investments:
• one name
• joint names
• company
• trust

The first two are problematic for a couple of reasons. They provide no asset protection and no flexibility. As time goes by and your circumstances change, we will rely on that flexibility to ensure that you are always in a strong position to achieve your goals. The company is not good because there is a potential for asset sales to be taxed twice…. A trust provides
• asset protection
• tax benefits
• flexibility

It is also a structure that the wealthy people use to own assets that produce wealth. Hence, if we wish to achieve the same results that the wealthy people achieve we really should do the same things that they do…and this is to use trusts to own the assets. When we look at trusts, there are really only three types of trust:
• a family or discretionary trust
• a unit trust
• A hybrid trust, which is a cross between the first two.

A family trust works well when we buy businesses or cashflow positive assets. It is not good when the assets are negatively geared as the losses are trapped within the trust and carried forward to absorb future profits. In this way, the individuals do not gain any tax benefits from negative gearing.

A unit trust works well when two (or more) unrelated parties buy assets together. There is no real advantage in using a unit trust within a single family unit as we lose the discretionary features or benefits that are available to help reduce the family tax.

A hybrid trust is best when the one family wants to buy assets that may be negatively geared as it enables the assets to be owned by the trust, but the individual to benefit from negative gearing against their other income such as salary.

Therefore, based on these simple rules…we would normally recommend a hybrid trust for property ownership when your intention is to build a decent portfolio of assets.

Certain consideration need to be looked at with regards to the ATO interest rulings but if established correctly this shouldnt prove to be a problem.

Cheers

Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.

Nicko

A HDT is a discretionary trust with the ability to issue income units. The individual then is able to borrow to buy the income units and can claim the interest on this = a way around the negative gearing in a trust issue.

If you are going in a project with another, then you could set up another structure (maybe a unit trust) or your trust can purchase jointly with the other party. Which way you go will depend on the degree of trust between the parties and other factors.

Terryw
Discover Home Loans
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