Morning!

I'm not a broker but if your investing with this reason in mind; "i am thinking long term so i can protect my assets for the future and then pass onto family beneficaries also"  then a trust structure with a corporate trustee is the way to go.

If you purchase in your own name then it's just another asset that can be taken away from you.

There is only one product with one lender that i can think of that is not for trusts (ANZ Low Doc), other than that you should not have problems getting finance with a trust structure.

I personally would not buy anything in my own name. Even when I go to Mcdonalds I buy a big Mac as trustee for the …….

HI ALL,

i have been interested in the 'trust verses own name structure' for a while now and i am still unsure what is best.

does anybody know anyone that has actually been sued and lost their properties or assetts?

in a trust property expenses and losses cannot be claimed against personal income.

who else would you want to pass income to through the trust other than your spouse or your children?

children can only receive $500 or $600 without paying tax and then they pay very high tax there after.

if your spouse is a low income earner, positive geared property or close to, could be bought in her name.
or, negative geared property could be bought in your name if you are the higher income earner.

sometimes the tax advantage can be better if bought in your own name, don't you think?

what do people think?

thanks,

frosty.

Plenty of people get sued every day of the week. Now I know probably 3 people about to go bankrupt. Once someone gets a judgment against you they can start proceedings to enforce it. They can get a court order, easily, to seize your property (car, goods etc as well as land), garnish bank accounts. if that is still not enough, they can easliy make you bankrupt if the debt is over $2500 (approx). They can't take assets that you do not own – unless you have transfered them recently etc to defeat creditors (eg selling your house to your wife a few months before going bankrupt).

A trust is a separate entitly, for tax purposes, and so any expenses can only be claimed by the trust. If there is a negative geared property in the trust, on its own, then there may be a loss which cannot be offset against your personal income. So this is a disadvantage early on.

other than your spouse and children, there is that cousin who goes to uni and doesn't earn an income – $10,000 pa tax free you could distribute to. If you have 10 of these family members, that is $100,000 income potentially tax free. There is also the possibility of distributing to a company – so when you are earning heaps and pay 48% tax, you probably don't want any more income so you distribute to a company which pays a max of 30% (if you have no other lower income tax pays to distribute to).

Children under 18 can earn approx $1200 pa without paying tax -taking into account rebates etc.

You could put a postive geared proeprty in the non-working spouse's name, but using a trust would make it much more flexible as the income could be diverted to a whole range of people – eg the spouse may go back to work and have a high tax rate. Trusts allow you to change things around.

Tax adantages can be higher in your own name initially, but you are sitting on a time bomb as the purpose of property is profit. Rents will rise and there will be a large capital gain eventually.

Hi Frosty

Wage earner's could still be sued. One of my friends went crazy on her credit cards. She is being sued by various banks and will lose all her properties. If they were in a trust they would have been safe. Or you may have had some a drink and then have an accident, insurance may not cover you if drinking etc. And then there is the famous story about someone being hit in the head by a golf ball during a charity event. Insurance didn't cover the course during the charity event and the individual was sued.

If you distribute money to people from the trust they must declare the money as income, so you will need to liase with them about it. What compensation you give them is up to you and your situation. I have various relatives which I could use and don't because of the complexity, but it would be possible.

You could keep on buying negative geared properties to offset any positive geared income from other properties. But it would be a time bomb as rents would be continually rising. You may never need to sell, you could just keep borrowing and lving on equity, but your heirs may have to pay CGT eventually.

With a trust there is an 80 year life so you will eventually have to sell their too. But 80 years is a long time.

The ATO website is down atm, so I am not sure about the kids income, but it was approx $1200 last year.

I did find these legal cases on Trusts and the taxation of children 
FCT v Whiting (1943) 68 CLR 199 
Taylor v FCT (1969) 119 CLR 444 
Truesdale v FCT (1970) 120 CLR 353 
Hobbs v FCT (1957) 98 CLR 151

Hi Terry,   thanks for the response again.

someone that goes crazy with credit cards possibly wouldn't be good with investments, as you need to be disiplined with money to do well.

also, in this day and age, drinking and driving is something that should be kept under control to be successful in more ways than one.
i do understand there will always be some risk to a certain degree.

if you had money you had to  distribute in a tax effective way, you could always off set it with another investment property, that way you wouldn't pay any tax on it at all.

not sure how a time bomb would result from rents continually rising as this once again could be off set by buying another investement property.  this would result in a growing investment property portfolio, being the desired result for many.
this could continue untill you wanted to cut back on working for wages.  stop buying properties to offset the positive gearing effect and start to live off the properties income.   eventually living off a passive income.     to speed things up a little you may want  to sell some properties to pay down some debt  on others.    the tax you pay on a capital gain might not be too much if you have stopped or cut back on your working wage.  

being in personal names also gets you a 50% discount on capital gains tax ( held longer than 12 months ), something that companies don't get.  ( not sure if trusts do, don't think so though ).

the tax advantage you get along the way, if held in personal names, is helpfull in building up a portfolio quicker.
its nice to not only have yourself and the tennant paying for your properties but also the tax man. ( depreciation claims, etc.)

i still find it hard to determine the best ownership structure as many experts favor different ways,  and all have good reasons, for and against each way.
 
i have read many property investments books including Steve Mcknights, Michael Yardneys, Margaret Lomas, and many more and all seem to be very successful people.  many have made it and with very different investment methods including ownership structures.

kind reguards,
frosty.

Frosty

You may also want to look at salary sacrifice too if you do not want to use a trust. see http://www.bantacs.com.au/newsflash/current_issue.pdf