LIC & LIT Beginner's Guide to Investing in Listed Investment Companies

Discussion in 'Shares & Funds' started by Nodrog, 21st Jan, 2017.

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  1. Summer of George

    Summer of George Active Member

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    Agree certainly an issue to consider - Hopefully one day the Trust will generate income so that personal vs company tax won't make a difference

    The greater issue will be CTG and whether that will change in vs out of trust and in relation to the company rate (discounts)

    My plan is not to worry too much about unknowns in the future and deal with knowns now in the present - a trust is the correct medium for us to be investing for the long term for the future

    Hopefully I will never sell what is in the trust so won't have to deal with CTG of any issues
     
  2. Summer of George

    Summer of George Active Member

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    thanks for the feedback and the discussion and thoughts (not advice)
     
  3. Summer of George

    Summer of George Active Member

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    This is the plan but its seems that its actually quite hard to do this well over a very long time - maybe robots are better at this than humans because we have emotion and an inherent belief that we just that bit better than the average and can tinker and change
     
  4. KayTea

    KayTea Well-Known Member

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    @Summer of George - Can I ask why you've decided to start investing through a trust (I'm not being critical or a smarty pants - I'm genuinely interested, as I don't really know enough about them, although I know @Terry_w has likely written heaps of stuff about it). Reasons, pros, cons....
     
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  5. Summer of George

    Summer of George Active Member

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    Background

    I am the main income earner and my spouse is the minimal earner

    Reasons

    • Want an investment portfolio that will grow over next 20-year working span
    • Aim to never sell but use dividends as income to fund retirement
    • Plan to gift an inheritance to children/grandchildren
    Pros
    • Control over where the income is distributed - currently will be 100% spouse but will provide options to distribute to children as they become older and then split between myself/wife and kids/grandkids as we see fit
    • Easy estate planning - can control and pass on without forced sale and nill CTG issues
    • Already use the trust for other business distributions
    Cons
    • Rule changes may remove some of the advantages that exist today (true of any structure in place today)
    After discussion with our accountant, with taking a lifetime view and (hopefully) dealing with larger values over the longterm, it gave us the greatest control now and in the future to structure the portfolio in a trust - the main advantage being able to control where the income goes so that it benefits now and then in retirement where ratio can be altered.

    The alternative was accumulating in wife's name which would be beneficial now but in 20 years with the income going 100% to her, it may disadvantage us but not being able to share income.
     
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  6. Chris Au

    Chris Au Well-Known Member

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    I had been considering a trust and weighing up pros cons. A con for me was the additional accounting costs compared to the length that I would hold the trust. The performance of the assets held in trust had to cover the additional costs of managing the trust over holding the assets in other structures. It appears that your long term view and incorporating other features evens this out.
    But I do like the income distribution and protection trusts give.
    Thanks for your comments.
     
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  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Have you sought legal advice on this? If assets are held in trust how do you Plan to gift an inheritance to children/grandchildren?
    If you plan to pass control on, how have you structured this?
    How have you made sure it is 'fair'?

    If you owned the shares they could be passed on, on your death, without triggering CGT or forcing a sale. They could be passed to the trustee of one or multiple testamentary discretionary trusts with additional tax benefits.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    How much extra would the accounting fees be? Another $500 per year perhaps. This should be pretty easy to save in tax with a trust.
     
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  9. Summer of George

    Summer of George Active Member

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    I have spoken to my accountant. The way you are suggesting a trust may not be the answer to what I am trying to achieve.

    The plan was to add children to trust as a beneficiary and I presume and on death, our will place it and all assets in testamentary discretionary trust

    Perhaps I should have a chat with you offline
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    These sorts of things should be discussed with a lawyer as it is legal advice.

    I am not suggesting a trust isn't the way to go but you have to consider various issues - which almost no one does. Many set up trusts which may hold large amounts, but the assets fall into the wrong hands at death of the controller because they didn't plan ahead.
     
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  11. therealAusting

    therealAusting Well-Known Member

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    Look at how old the persons are who are setting up the trust. For me anyone over 55 who wants to run a Trust for the next 25 years has their work cut out for them if it is involved in distributing and taking care of transactions.
    If the money has already been made then just keeping it in own name can have advantages on death. What's the point of making the money and then an unknown person taking control?
    Have you thought about using a trust simply as a money funnel for a loan then using the assets purchased in own name (real estate or shares) for income or living in but with asset protection by registering an interest on the PPSR. When the Trust is no longer useful the assets are already in your own name so no CGT.
    Simple strategies for accumulation such as bonus shares instead of DRP cut down on tax and there is no CGT on death when you transfer to Testamentary Trusts.
    Who knows with a non actively trading Trust you might actually get someone to do a tax return for $500.00.
    Trusts have there place for me but your capacity and willingness to complicate your life not to mention the fees are all a part of the total cost. What age are you now? How long will you have mental capacity? When will you die?
    What I am thinking of simplifies things in my mind but it's up to you in the end.
     
    Last edited: 24th Apr, 2018
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  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    @therealAusting what do you mean by :"Have you thought about using a trust simply as a money funnel for a loan then using the assets purchased in own name"?

    BTW, I wasn't suggesting a tax return could be done for $500, but it might be $500 more for a trust compared to owning the shares in your own name - this would result in increased tax preparation fees.

    I am not an accountant and don't do tax returns so have no idea, but worth asking the accountant about.
     
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  13. therealAusting

    therealAusting Well-Known Member

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    Hi Terry
    Money Funnel. My meaning here is gift to Trust that loans you the money backto buy assets. The Trust then has an interest in the assets that may be able to be "registered". Would this provide asset protection? That is why I would do it so a lot of the reason for my having a trust may be taken care of.

    Accountants and there fees have been a sore point with me. Going to an accountant with the 2 yearly transaction dockets For a share seems to have little if any difference to my accounting bill. Running a Trust does have it's costs. The quotes and prices I have either paid for or have been quoted range from $1500 to $2500 for a Trust that would hold 3 or so shares.
    What I was getting at was for non trading Trust with a nil return you may be able to find an account to submit a return for a cheaper price than I have previously paid or been quoted ie the $500.
    iPhone again sorry for the typos
     
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  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes you could use the gift and borrow back strategy for asset protection. The trust could take a charge over the shares too. This trust could have no taxable income if not interest is charged. The trustee could potentially lodge the trust return themselves.
     
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  15. therealAusting

    therealAusting Well-Known Member

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    Yes gift and borrow back 'as wel as' registering the interest. This eliminates all doubt in my mind.
    There are 'other things' that can be done to keep the Trust setup simple as well while still allowing you to keep control. After initial gift/borrow1/PPSR I can't even see the need for a Trust bank account.
    Selecting shares that offer bonus shares instead of DRP or taking the dive allow you to income stream to a certain extent as well.
    Loans and PPSR dies on or before your death(mine not yours) and you assets go straight to a TT without paying CGT as would be the case Ield in a Trust.
    iPhone sorry for the typos.
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    But you have to take care of the loan upon death. Otherwise the trustee will sue your estate!
     
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  17. therealAusting

    therealAusting Well-Known Member

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    Can a loan agreement be settled in another way other than paying back the dollar amount?
    ie loan is forgiven upon my death if I wanted the Loan to die with me
    OR
    I wanted to dispense with the Trust earlier perhaps the Trustee could forgive the Loan upon some other action ie a token donation $100.00 to the RSPCA or maybe for no reason at all.
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Ye, but you have to be careful. What if a trustee in bankruptcy steps into your shoes and makes the $100 gift to the RSPCA for example?
     
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  19. therealAusting

    therealAusting Well-Known Member

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    Then put in a clause "Subject to approval by the Guardian". I would be the Guardian and would not approve i
    Or add some other 'novel' steps that a trustee in bankruptcy would have no control over.
     
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  20. willy1111

    willy1111 Well-Known Member

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    As I understand it the gift then becomes the corpus of the trust.

    Can this corpus be distributed to any beneficiary at any time at discretion of trustee and not be taxable in hands of beneficiary?