Investment property: Pty Ltd company versus Family Trust

The company as trustee for the trust will provide the most benefits and flexibility.

Trustees can be personally sued and this could lead to the loss of personal assets. Companies offer limited liability which will add a heap of protection.

If you just use a company (without a trust) you will pay more CGT (no 50% reduction available) and it will not be flexible as dividends  can only be issued in accordance with shareholdings – but the company could get around this to a certain extent by employing people. Company shares are also considered property – so if you are sued they could fall into the hands of creditors.

You stated you will not be borrowing. If you contribute cash to buy the property, it will be on the balance sheet as a loan from you to the trust. Therefore an asset to you – e.g. Similar to shareholdings. Be careful not to set up a ‘dud’ trust where the asset is vulnerable regardless of if it is the trust, trustee or or beneficiary is sued…

If your focus is distributions – trusts are great!

Hi Terry. Agree with your post however no point in tipping is cash to buy in trust and having no asset protection for the original purchase price plus costs e.g. Only protecting growth.

Every time I use to annual review a file in the bank I would point out beneficiaries loans. If you have finance outside of the trust e.g. Home loans or personal investment loans – they can be refinanced e.g.

home or investment loan 300k
beneficiary loan in trust 200k

refinance to a split – 200 in trust, 100 in personal name. Purpose of funds for trust loan is refinance beneficiaries loans to bank debt. Beneficiaries used funds to pay down debt in personal name. Needs to be controlled by the bank to keep the LVR in check.

Almost all my clients are trusts – I don’t let them keep beneficiary loans on balance sheets.

This might involve guarantees as the borrow and asset owner might not be the same however provides a more secure trust structure.

Banker, as I've pointed out before, there IS asset protection in the trust.

Sure, if person A loans money to the trust, and person A goes bankrupt, that money loaned to the trust is available to the creditors. I get that.

But if the asset was not in a trust, THE WHOLE ASSET is available to the creditors.

eg – Asset book value $500,000 (current value $750,000) – Loan from bank $400,000, Loan from Person A $100,000

Person A goes bankrupt. If asset is in trust, creditors can get $100,000
If asset is not in trust, creditors can sell $750,000 asset.

Which would you prefer???

Another point – if you have $100,000 to lend to a trust then this is already available to potential creditors. But tying it up in a trust makes it more complicated and possibly less likely that someone will a) notice it and b) go after it.

I am new to property investing but I am looking to buy an investment property and I have a company Pty Ltd set up as Family Trust. So in a nut shell, I am trying to confirm whether there are more pros to using a family trust to buy an IP???

As my new tax accountant says there isn't much difference.

Also, many years down the road, if I want to transfer the IP property into my child's name, is it  a simple process using a family trust as opposed to buying in my own name outright?

cheers

Natasha

Why do you already have a trust set up? If this is trading it may not be a good idea to buy property in this same trust.

And I agree with RPI, there is a huge difference between a company and a company acting as trustee.

If you want to transfer the property from the trust to a child there will be stamp duty and CGT, legals, loans to worry about. You could leave the property in the trust and pass on control to the child, once they are over 18 – they could just become the director of the trustee.