Hi There!
I am a new member and have been pouring over the forums for the past fews days and have found a lot of useful information on varying topics. Like many others I am looking at what is the best legal entity to shelter and manage my future assets. The question I have now for all the experienced people is when is it financially worthwhile to set up a legal entity? I have seen that it can cost thousands to set up and manage a legal entity and if I am starting with only 1 property, surely these costs will greatly hinder the growth of my portfolio. Now I am not against spending money for good advice and services but is setting up a trust to manage 1 property seems to be a bit of a luxury.At what point (value of assets, amount of passive income, number of properties, starting a family etc.) would 'you' recommend the costs of setting up and managing a trust to be worthwhile?Thanks
When you consider you can set up a Trust for around $400-$600 (depending on whether you do it yourself) it is well worth it.
Even adding a Corporate Trustee is only these days going to cost around the same amount with the reduction in ASIC fees
Richard Taylor | Australia's leading private lender
It is going to cost you dearly if you want to transfer property into a trust later, so it is best to decide straight away if you need one and then consider setting it up.
Many years ago when I started investing, I was advised to do one property in my own name to see how it went, and then if I knew I was going to keep going, to set up a trust then.
This may be good advice, but when you think about what could happen if you are ever sued, it may be best to do it straight away.
ps, I know many people who use one trust per property. ie they set up a new trust for every new property they purchase.
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
Dumb girl question –
Any solicitor can set this up? What we we need to tell them we ned the trust to do or will they know that already?Cheers
Stella
Hi Stella
Any solicitor who deals in trusts should be able to set this up and they will know the best type of trust for you.
BennyK, the answer is it depends on what you plan to do long term. If you are only ever planning to buy one property it is probably not worth it. It costs about $1000 to set up (less if you do it yourself, but I wouldn't recommend doing this as it can become complicated. I used to be a lawyer and I didn't set up my own). Tax returns cost about $1000 per year.
If you are planning to buy more, even if it is only 2 – 3 in your lifetime, then it is worthwhile setting it up right from the beginning.
For us it was a big up front expense but it has saved us THOUSANDS and THOUSANDS in tax.
Cheers
K
Does anyone Know of anyone who has actually been sued?
Thanks you everyone for your comments!
This costs listed in the above comments sound more reasonable – my reluctance to do this was from seeing a quote from a well known accountancy practice with costs ranging from $1650 to $4400 to establish and $1000 + time to complete a tax return (TR). If I am looking at $50 per week +ve cashflow after all expenses (therefore $2600 p.a.), I would use up all my first year +ve cashflow in establishing the trust and TR. I am then losing half my cash every year thereafter in TR's. I have had a investement property for the past 4 years (yes, I know, time to get off my butt and find the next one). To date I have had no issues that would make think I need to consider a trust – however with property number 2 looming on the horizon it seems unanimous that setting a trust up is a smart move.TerryW, you said that the expenses to transfer a property into a trust are significant. Briefly, if you dont mind, what kind expenses? So anything that isn't already in the Trust name (therefore investments that pre-datethe establishing on the Trust) will incurr these transfer costs?Also, is this correct – you establish a Trust first, then buy assets (in the Trust name). Therefore you technically start the Trust with nothing in it? Otherwise you are buying in your own name and transferring the asset in.Can anyone suggest a "Trusts for Dummies" type book that will allow me to get a grasp on Trusts?Thanks again!My understanding is that you would have to pay stamp duty and CGT on the property you have already if you transferred i into a trust. I have heard that with a good accountant they can make it minimal but I haven't actually gone through the experience.
Hi Millions
Yes, although as I said earlier, I used to be a solicitor. The main reason I use trusts is for the income splitting benefits, rather than the legal protection trusts afford. When we first started buying properties my husband worked and I just had baby number 1 so most of the income was given to me. Now my husband has quit work, we split it between us.
BennyK
You will lose half your income in the expenses, but each year your rental income will increase and as you buy more properties, that cost will be spread amongst those properties.
When you transfer properties from your own name into a trust it is exactly the same as if you are selling that property to a trust so as millions says, you will have to pay stamp duty on the purchase as well as conveyancing costs and other miscellaneous costs and you will have to pay CGT on any capital gain you have made. Given that you have had the property for 4 years, I expect that there will be a significant capital gain. You can't just sell it to the trust at the same price you bought it. The tax office will want to see a valuation at the time it is transferred into the trust.
When I set up my trusts, I just started with a small deposit of about $10. Then I bought properties in the name of the trust.
As for books, have a look in the Shopping Mall seciton of the API. There will be a few books on trusts recommended in there. Trusts are complex creatures. I don't really understand them myself. But that's what I pay my accountant for.
Cheers
K
Thanks Linar.
I understand now how significant the transfer costs are. I bougt my first property before the boom and it has risen in value to about 190% – 200% of what I paid for it. Can I 'gift' or 'donate' the property to the trust? The CGT I would be liable for has taken the wind out of my sails. How gan the CGT be minimised?Good points Linar.
Hey BennyK
I will preface my answers by saying that these are just my opinions and experience but you should get independent legal/financial advice.
Having gotten that out the way, my understanding is that you can't avoid CGT by either gifting or donating the property (although I like your lateral thinking).
If I were you I would just start putting any new properties in the trust and keep the current one in your name. If you decide to sell it, sell it in a year when your income is low, ie, if you take a year off or have some kind of unpaid leave. Again, your accountant will give you better advice.
Cheers
K
Hi
You can gift a property to a trust, but you will be required to pay stamp duty at market rates. CGT may also apply if the property is an investment. A trust is a separate entity for tax purposes, so, as mentioned, it is the same as you selling to your trust.
Trust setup can cost from $200, plus about $200 stamp duty (depending on state, nil in QLD), but it would be a good idea to get some advice from a good accountant – this costs around $1200 for trust and advice. You need advice on who should play the various roles in the trust. if you get this wrong it could be costly. eg. One of my clients made his son settlor – that means the son can never receive money from the trust.
You should also seek advice from a finance broker as you want to know the implications of getting finance – eg some lenders require personal guarantees from all named adult beneficiaries.
Tax returns for a trust should not cost much. You will be required to lodge a tax return for the trust so your accountant will charge you for that, but you would have owned the property in your own name if you didn't use a trust so it is almost no additional work on their part.
Even if you only ever own one property it is still worth considering. Imagine if you were to sell with a $1mil capital gain (like one of my clients after 5 years of ownership). If you had owned the property in a trust it may save you thousands in tax – 10s of thousands. If you purchased the property in the name of the highest income earner, to negative gear, you could be up for huge amounts of CGT.
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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
