It has been suggested by my accountant that my partner and I set up a discretionary trust with a corporate trustee. This costs a Motza through the solicitor (about $2000). Can i …?
1) get on the ASIC web site and set up the compnay my self for the ACN? If so… How do i structure it. Myself Director but who as shareholders? How many shares? What value shares? Any other advice?
2) Can i then go to a website such as http://www.lawcentral.com.au and do the family trust by myself and list my newly formed company as the trustee? Any tips on this? Can the appointor be the director of the company acting as trustee? Is there any issues with crossing any of these roles with being a beneficiary of the trust?
All advice on this issue would be very much appreciaed.
Thanks,
JasonHi there
it is possible to DIY
the relevant form 201 is the one you need to set up a company with ASIC
you can use the other site your mentioned for your company constitution and your family trust
Can you see a planner and perhaps review how your structure should be?
If there is a risk of being sued you may want to be the director for your trust company – and have the $1 shares owned by a completely different company. Obviously the more complex the structure, the more expensive your ongoing costs.
While it may seem a lot to pay the $2000, if the solicitor actually knows about asset protection and the reasons behind what you are doing – it could be money well spent
thanksThanks raddles,
The trust will be entirely for buying some investment property's. The company won't be trading at all and i don't see the risk of being sued as high. Is there somewhere that i can get advice on the best way to put it together?
This is my plan…
Get asic form 201 and complete it with myself as director and sole shareholder with $1 ordinary share. Send it away for $400 and obtain my ACN. I understand you can just adopt a 'generic' company constitution for a shelf company.
Then, via http://www.lawcentral.com.auor similar, start a trust with the company as the corparate trustee. I would be the appointor with my girlfriend and i both as beneficiary's.
I know its a horse for courses, but i'm assuming that thousands of people must have this as part of their structure and hoping that there is model that is common for what my intentions are. If anyone has any ideas i can then determine whether to do it myself, do it myself with some profesional revision or just spend the dough and get it done for us (damn expensive for what seems like limited work or knowledge required… bloody lawyers…lol)
JasonYou probably want 2 appointors and you also need what's called a settlor – someone who deposits and initial amount ($10.00 generally) who then has no claim to anything whatsoever. They are basically the person who gives your company the money to hold in trust.
Is $2k the quote to set up your company and the trust? Because if it's for both it's probably not that bad a price.
Talk to an accountant. They can advise you on the best structure and organise to set it up if you want.
In this day and age there is always a risk off being sued (maybe only a remote chance) even with an investment property. Just a simple act of receiving a phone call from a tennant stating the smoke detector wasn't working. A month goes by and it wasn't replaced. The house is destroyed by fire and there is also loss of life…I would be wanting a legal structure to protect my assests. The chances of this happening are small but the consquences quite large.
Something off topic, many smoke detectors have a use by date which can lead them to not detecting a fire if they are old…wonder how many faulty dectors are being used in rental properties???
You can set it up yourself but as a lawyer my advice is …. don't, just don't.
There are so many issues that need to be taken into consideration. $2000 is nothing. Getting it wrong (and there are so many things to get wrong) will cost you a lot more.
Again, just to recap – don't.
Cheers
K
Yes I agree. $2000 isn't too bad and there are many things to consider such as various roles and their role players.
You can save some money by setting up the company yourself. Just walk into asic and fill in some forms. $400 I think is the fee. Or you could pay $99 on law central and get all the forms filled in and a constitution as well (these are no longer compulsory as there are rules in the corporations act which can be relied up for companies without constitutions). I would get 100 shares too rather than just 1 share as you may want to add shareholders later.
1 director is good for asset protection reasons and borrowing reasons – lenders want guarantees from directors.
Besides the legal and accounting issues there is also the borrowing issues to consider. eg. Some lenders will want guarantees from all adult named beneficiaries (which is ridiculous!). So if you name your girlfriend then she may need to give a guarantee, This can limit borrowing power dramatically. Also the new anit money laundering legislation requires indentifying all major beneficiaries.
You may get things wrong if you go alone with the trust – eg if you put a relative as appointor you could get into trouble as the appointor can never benefit from the trust.
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
Hi
$2000 to provide a solid risk managment structure is a reasonably cheap amount.
There are a number of clauses in both the company constitution and the trust deed that if not done right can cause all sorts of issues going forwards.
If you are serious about SUSTAINABLE wealth creation be prepared to pay for good structuring.
You say nothing of what you do for an income – you, your partner or your business?? could be at risk, therefore prudent structuring can avoid unecessary risks of your investments being at risk as well. Not just the actual risks of being a property owner in relation to your other assets.
Remember you don't know what you don't know – these are the things that can damage future wealth accumulation.
Do it yourself and you are accountable – have a professional do it and they are accountable.
Terryw wrote:You may get things wrong if you go alone with the trust – eg if you put a relative as appointor you could get into trouble as the appointor can never benefit from the trust.New trusts do not have appointors they have principals – the principal can also be trustee and beneficiary. Just make sure you don't have default beneficiaries in my view.
Sorry Damian
New trusts do not have appointors they have principals – the principal can also be trustee and beneficiary
Not according to Maddocks Lawyers in Melbourne. From their Trust website
"Each new trust will have an Appointor whose role is to replace the Trustee if needs be. Although you have a choice as to whether an appointor will be appointed to a new Trust, you should consider the benefit of having an appointor to cater for situations such as the death or insolvency of a trustee. The appointor may be the settlor, an existing trustee, a named beneficiary or any other third party".
Richard Taylor | Australia's leading private lender
Thanks guys for the info,
I'll be getting my solicitor to set it up but am still going to have a crack at the forms myself and run it by him when i go and see him in the next few weeks. I won't submit any forms but for interest sake will try and structure it myself before i get it done properly. This was what i had in mind… Set up company with myself as sole director and secretary. (govt employee)Have 10 x $1 fully paid shares.
Set up family trust with the abve company as the corporate trustee. Get old matey up the road to lodge $10 as settlor and have have myself as appointor??? (can appointor be a beneficiary?) . Beneficiaries will be mum, girlfriend and myself.
We all (mum and my partner and I) have our own equity for deposits on properties but only my partner and i have the cash flow to finance any loans. Does this work? Sorry about these questions that don't have information to support them but my interest in discretionary trust structuring has been raised and i want to understand them before i set one up. My accountant did a big diagram on the whiteboard to indicate how it worked but its only started to become clearer with the research i'm doing.
Good points made about accountability and also terry for the number of shares, but how does a trust borrow money? From what i understand the beneficiaries act as guarantors but how does one make their equity/cash flow available to borrowing within a trust?
Sorry if this is asking a bit much and like i said, i will be getting proffesional advice but would like to know before hand because i don't know what the lawyers don't know (especially relating to borrowing money and what lenders require for loans to trusts).
Thanks again.
Jason
Tell meThe company need only have 1 * $1 fully paid share.
If you're mother is also investing capital in the trust, perhaps it would be best to set a hybrid trust. That is, a trust that is partly defined by units and partly discretionary. That way each persons share of any capital gain is clearly defined as a percentage based on how many units they own, yet any income from the property is still distributed at the trustees discretion.
The trust itself doesn't actually borrow the money. The trustee borrows the cash.
I've done pretty much this exact thing recently, set up a fully discretionary trust, controlled by a corporate (company) trustee of which I am the sole director. My experience in getting finance has been tedious, if not difficult…
This is with ANZ through a broker applying for a 90% LVR on a 3 bed property…
The loan is in the company name ATF the trust. It will be subject to the banks conditions on loans to companies.
As director of the company, I was required to sign personal guarantee, provide personal income details etc etc (fair enough).
Initially they wanted my wife's income and third party guarantor for servicing purposes (fair enough).
The application got to LMI stage and was knocked back because, even though my wife is a beneficiary to the trust, they didn't deem that she was gaining enough of a direct financial gain from the property for them to be able to accept her income and guarantee. If she was a director of the trustee company, this wouldn't have been a problem.
I had 4 choices in order to get the app through…
Apply elsewhere (the property is settling in 4 weeks)
Make my wife a director of the trustee company in order for them to accept a personal guarantee from her (not happening as I want her as far removed from liability as possible)
Make her a co-holder of the loan (refer above)
Stump up another 10% and negate the need for LMI. (Path Chosen)Bear this in mind when you make your app – the banks may make you go through hoops to get a loan with this structure. That's just my experience and of course you may be in a position that means you won't have to go through all of that.
Even though you only require 1x $1 share, in case you wish to sell a portion of your company in the future you may be better having something like 100x $1 shares. Saves filling in and paying for ASIC forms to modify the number of shares down the track. Having 100 shares gives greater flexibility if you did want to sell anything off. eg 5% to mum, 5% to dad and 25% to the girl friend
gibbo1 wrote:Even though you only require 1x $1 share, in case you wish to sell a portion of your company in the future you may be better having something like 100x $1 shares. Saves filling in and paying for ASIC forms to modify the number of shares down the track. Having 100 shares gives greater flexibility if you did want to sell anything off. eg 5% to mum, 5% to dad and 25% to the girl friendIs having 100 x $1 shares the same as having 10 x 1c shares?
A hybrid trust was considered, although theres some issues with the ATO re the distribution of income to unit holders. They seem to make sense on paper, but advice has been to stear clear for the moment until a court hearing disolves or upholds the issues.if you have 10 x 1c shares if you sell 1 share you sell 10% of the company. What you wont be able to do is sell 2.5 shares if you wish to sell a 25% share.
jasandliv wrote:Thanks guys for the info,
I'll be getting my solicitor to set it up but am still going to have a crack at the forms myself and run it by him when i go and see him in the next few weeks. I won't submit any forms but for interest sake will try and structure it myself before i get it done properly. This was what i had in mind… Set up company with myself as sole director and secretary. (govt employee)Have 10 x $1 fully paid shares.
Set up family trust with the abve company as the corporate trustee. Get old matey up the road to lodge $10 as settlor and have have myself as appointor??? (can appointor be a beneficiary?) . Beneficiaries will be mum, girlfriend and myself.
We all (mum and my partner and I) have our own equity for deposits on properties but only my partner and i have the cash flow to finance any loans. Does this work? Sorry about these questions that don't have information to support them but my interest in discretionary trust structuring has been raised and i want to understand them before i set one up. My accountant did a big diagram on the whiteboard to indicate how it worked but its only started to become clearer with the research i'm doing.
Good points made about accountability and also terry for the number of shares, but how does a trust borrow money? From what i understand the beneficiaries act as guarantors but how does one make their equity/cash flow available to borrowing within a trust?
Sorry if this is asking a bit much and like i said, i will be getting proffesional advice but would like to know before hand because i don't know what the lawyers don't know (especially relating to borrowing money and what lenders require for loans to trusts).
Thanks again.
Jason
Tell meBe careful about naming mum and your girlfriend as beneficiaries. Some banks such will insist on obtaining guarantees from them. Other banks will want a letter from them both, and anyone else named, saying they do not have a problem with the trustee borrowing money. However, if they are not named then the potential beneficiaries may be more limited. eg. if you separate from your wife her future step son may be a beneficiary if she is named, but not if she is not named.
Getting finance is not really any more difficult with a company than getting finance in your own name. You will just have to supply a copy of the certificate of registration and the trust deed. Having a company is helpful as you could add or subtract directors in the future to help with borrowing. eg. you buy a house in your own name, then get a court judgment for unpaid rates. It may be very hard to get decent finance and your equity could be trapped in there. You get your wife to go director and you resign. She then guarantees the next loan.
There are some restrictions with company borrowings. eg ANZ will not allow Low Doc loans for property in a company name. Most of the other lenders don't seem to have problems with them.
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
In my (limited) experience, they will take a personal guarantee from the director/s of the trustee company and, if they are not satisfied with the servicing ability of said directors they’ll ask for a third party guarantor.
The problem we had was when I got to the LMI stage, the insurer wasn’t satisfied that the said guarantor was gaining enough benefit from the arrangement to accept them. So the bank would accept her for servicing reasons but the LMI wouldn’t.
Not an issue if no LMI is necessary…
I wouldn’t have my investments structured any other way.
Hi Imugli
ANZ and their mortgage insurers can be fussy about this sort of thing. I think if you went to another lender such as St George, there wouldn't have been a problem. Surely a spouse will gain a benefit – from being the spouse as well as being a beneficiary of the trust.
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 for the input guys. Very helpful and i've done the draft so i can run it by my accountant. If he says it is ok, i will lodge it, otherwise i'll get him to do it. I've done enough fishing around for advice so if have haven't come up with something now i'll need to head back to school.
Thank you allTerryw wrote:Hi ImugliANZ and their mortgage insurers can be fussy about this sort of thing. I think if you went to another lender such as St George, there wouldn't have been a problem. Surely a spouse will gain a benefit – from being the spouse as well as being a beneficiary of the trust.
You would think so, wouldn't you? ANZ themselves were fine with it but the insurers didn't want a bar of it…
We have our PPoR mortgage with St George so perhaps it would have been easier to go through them directly, but I've called them a couple of times and said I'm taking my business elsewhere and they have been completely unwilling to budge on anything, so I refuse to show them loyalty for nothing… Let's see how quickly they call me when I refinance my PPoR with ANZ as well…
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