Again Sorry…
I am really struggling to work out whether to buy my first and therefore subsequent properties under a trust or individual names.
Has anyone perhaps made up a spreadsheet template that may assist me in better assertaining the financial benefits/negatives of the options?
So far the only real benefit I see to a trust structure (distrectionary trust) is the ability to distribute income to ensure no more than 30% tax paid. (not that I or my partner have ever had to pay more than that from a day job).
So far the real disadvantage is not being able to deduct the cost of borrowing the funds.
(I realise there are alot more pro's and cons but these seem to be the principal ones in my situation)
After going around and around on the round a bout I think I realise why I am struggling and seek your input. Is this back to the age old debate of +ve cashflow property (several properties earning an income, thus a DT good) Vs Negative gearing for positive capital growth to be re invested for maximum tax advantages and growth of large portfolil (thus no income being earned, better in own name)?
I'll be watching this thread with great interest. I'd love to see the pros and cons of buying in own name vs trust vs company vs SMSF structure all side by side.
Others will add to the discussion, but here are some thoughts:
Pros:
Asset protection against tenants suing. Entire portfolio not held in same "entity" (name) means you are limiting the properties they can force you to liquidate. As I understand it, the asset protection against greedy ex-spouses is not relevant as the family court is getting good at unravelling trusts.
Ability to distribute funds to your kids (and then take the money straight back off them to pay the school fees) or other trust beneficiaries to suit yourself in that given year.
Cons:
Pretty sure trusts do not enjoy a landtax-free-threshold.
Can't negative gear any losses against your income
Extra accounting + setup fees
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
It would be good to get a good general idea via a spreadsheet, but some things will be hard to measure, such as:
– the asset protection aspects
– the tax savings (future is unpredictable. now no kids but in future you may have 2 kids who could take $6,000 pa from the trust tax free).
– Its a bit complicated with land tax as different states have different rules
– trusts can negative gear – if they have losses from property this can be offset by other trust income. It just can't offset personal incomeJacM. No real protection against tenants suing as they will sue the owner of the property = the trustee who will be indemnified out of the trust assets. But if you have different trusts then these other assets should be safe. The main thing about asset protection and trusts is that if you were to personally go bankrupt, assets held in trust are not available to creditors, s116 Bankruptcy Act
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 do however have your assets protected against someone suing you as an individual don’t you? I know some people who are in the medical & law professions who purchase everything in a trust as that way they own nothing the trust does, so if they are sued they can’t have their assets taken from them.
I too am trying to decide what to do re trusts or continuing as is. Main reasons being our 3 properties atm are not PCF because two are slightly negative and we negatively gear losses against our income. Once is positive but only by $150/mth so hardly generating much income. I do think that if I had a few positively geared properties I would want them in a trust.
Ruth
hi Ruth
Property held in trust for someone else isn't available to creditors if you are personally sued – usually.
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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