I have been dabbling in property investing for the past few years and after having recently attended the 3 day Mega conference I am revising my structure for investing.
I went to my accountant to talk about setting up a trust structure as I had heard that was the best way for asset protection and for improving continued borrowing capacity. After a lengthy (and most likely expensive!) chat with my accountant, I still don't really know what to do because:
1. he advised that you are no better protected through the trust structure as if you are the director of the trust, they can still get your assets
and
2. the best trust structure to use is that of a family trust.The problem is, I can't set up a family trust, as I am a private individual with no spouse and no children. Whilst I could name my siblings or my parents as beneficiaries of the trust, with the exception of my parents there is no tax benefit in doing that, and also, the purpose of doing this investing is for my own financial freedom – paying out the trust's profits to siblings or parents is not really going to allow me to achieve that (can you imagine them wanting the burden of adding this to their tax situation and then paying me the money back?)
So if a family trust isn't the way to go for me, then what is? Any suggestions? As I said before the aim is for my financial freedom through purchasing postively geared investments. I am currently maxed out in my borrowing capacity and I need to find a way of getting the borrowing benefits of a trust structure, as Steve discusses in his book, but as a private individual I don't know how to do this.
Any thoughts?
Ta
kmuki
Hi kmuki,
Firstly, the question of increased borrowing power of a trust has been discussed on this forum by many of the mortgage brokers here. The consensus seems to be that a trust can not borrow any more than an individual can, due to the personal guarantees required, and the disclosure of these guarantees.
A Family Trust, especially with a corporate trustee, will provide increased asset protection, when compared to operating under your own name. It is a good idea to keep your investment assets separate from your personal assets.
Your loan on the IP will most likely require a personal guarantee, and with any amount owing to the ATO, the directors of the trustee company are liable, but in most other instances, the trust / company provide protection for your assets.
I think you accountant is wrong – or you misinterpreted what you where told.
Firstly trusts don't have directors, but trustees. If the trustee is a company, then the company will have a director.
Discretionary trusts are the best method of asset protection as no beneficiaries have any interest in the trust. This means if a beneficiary goes bankrupt the assets of the trust are not up for grabs – this is confirmed by the Bankruptcy Act, that assets held on trust are not available to creditors. of course, if you have to give personal guarantees, then your personal assets will be at risk.
A family trust is just a discretionary trust. The trusts beneficiaries will often include most of your relatives, whether living or yet to be born, even future adpoted chidlren etc, so it is very broad and flexible for tax savings. If you have no one at the moment, you could distribute to a company and cap the tax at 30% – soon to be 28% and eventually divert funds out at a later date.
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
I have Companies, unit trusts, discretionary trusts & a SMSF but my last 3 IP purchases have been made in my own personal name. In my experience it's sooooo much more difficult to borrow under a Trust structure as there is limited Banks who will do it. All plain sailing when borrowing in my own name.
largely, depends on the trustee. These days it is getting harder to get loans for companies – often goes through the business section.
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
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