Hi all,
I have a family trust set up ready to go.
How many properties to I buy with this trust before I need to set up another?
PJ
How many properties would you be prepared to lose in one lawsuit if a tenant sued the owner of a property for something? That's probably your answer.
That said, let's pretend that you have an IP that returns only $6k per year in rents, and let's pretend that it would cost $2k per year in accounting fees to keep the trust going, you might have a personal preference to store more than one IP in that trust, to make it affordable.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi JacM,
Ok, that sounds logical enough.
So, with 20 properties you will have around, I'm guessing, 6 trusts?
Each trust is linked with a pty ltd company who acts as the trustee. Does that sound correct?
How have others structured themselves when there are more than a handful of properties?
Also, if many of these properties are quality properties with development potential(a few units or subdivsion)? Do these properties get moved out of the trust and sit in their own pty ltd company?
PJ
I would do one per trust – but the costs start to add up $500 stamp duty on each trust is NSW now!
Sounds like you are unsure how trusts work. The company will be the trustee and legal owner of the property. You wouldn't transfer properties into a trust later on, but do it from the beginning. Otherwise you would pay CGT and stamp duty on the transfer. It is is a development definitely use a new 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
Terry,
I have a discretionary family trust. When buying an IP do I use the name of the company (the trustee) or the name of the trust?
PJ
The trustee (company) is the legal entity, so this is the name that will appear on the title.
OK now I am confused.
My vocation is subject to litigation. Because of this my accountant has advised, any property I buy should be purchased under the umbrella of a family discretionary trust. The owner of the property is the name of the trust.
At present, I am the trustee of this trust with my family as beneficeries. That is to say the entity known as PJ.
I only became aware of using a further 'arms length' method of ensuring the trustee is a pty ltd company. The sole share holder being myself. This still gives me administrative control as trustee but with an added layer of protection.
If it is the company(trustee) that owns the property and not the trust, how does the trust hand out income to its beneficeries if it owns nothing?
I was under the impression the role of the trustee (company or not) is simply administrative.
PJ
Please excuse the ignorance. Everyone has to start somewhere.
Mate, far from ignorance, you are smart enough to ask the questions!
in some cases you are simply asking what other people are thinking of asking but dont
good thread thanks
propertyjockey wrote:OK now I am confused.My vocation is subject to litigation. Because of this my accountant has advised, any property I buy should be purchased under the umbrella of a family discretionary trust. The owner of the property is the name of the trust.
At present, I am the trustee of this trust with my family as beneficeries. That is to say the entity known as PJ.
I only became aware of using a further 'arms length' method of ensuring the trustee is a pty ltd company. The sole share holder being myself. This still gives me administrative control as trustee but with an added layer of protection.
If it is the company(trustee) that owns the property and not the trust, how does the trust hand out income to its beneficeries if it owns nothing?
I was under the impression the role of the trustee (company or not) is simply administrative.
PJ
Please excuse the ignorance. Everyone has to start somewhere.
It takes a while for this info to sink in.
Broadly speaking there are two ways to own property – for yourself and on behalf of someone else.
The best example is children's bank accounts. If a mum opens an account for the 2 yr old child she is owning the property (ie the money). Whose money is it? It is in the mums name but the kid is the true owner. This would be an example of a bare trust.
So the trustee is the legal owner, but the trustee only owns the property for the beneficiaries of the trust – these are the beneficial owners of the property. This is why if a trustee is sued the property of the trust is, generally, out of reach.
The role of the trustee is more than administrative – they are the legal owners and can do with the property as per their agreement with the beneficiaries.
There are also 2 aspects of asset protection.
The first is if a trustee is sued as an individual. eg you are trustee of your property trust and are sued because of defamation related to your personal issues. The property that you own as trustee for others is not able to be taken from you to fulfill any judgment – generally, there are many exceptions.
The second is if the trust itself is sued. the trust is not a legal entity, so it is the trustee that is sued. In this case the trustee may be liable for the judgment but is generally indemnified from the trust assets. But, if the trust does not have enough assets to satisfy the judgment then the trustee's other assets will be at risk. This is why you should use a company for anything in which there is a risk of being sued – such as owning real property or a business. If you just own shares there is no real risk of the trust being sued as shareholders are not liable for anything the company does.
Using a company as trustee also has other advantages such as:
– helps to clearly distinguish personal assets from trust assets.
– easy to change control of the trust. You just change directors. If you are a personal trustee you would have to change title deeds and loans etc
– easy to add people
etcTerryw | 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 Terry for taking the time to explain this to me.
I appreciate the effort.
PJ
You must be logged in to reply to this topic. If you don't have an account, you can register here.
