Family Trust Structure

Hi guys,

Small time developer here starting my second project. I am having concerns about my asset protection. For the first project, we did it under a trust with a corporate trustee. Sold 2 of the units and moved into one.

Now with the second project, it's held under the same trust. Will there be any issues with that? Feels a bit exposed to me. If something goes wrong and we get sued my current PPOR (in the same trust) will be in danger?

Is it normal to use a new family trust to hold each new development? And shut it down once it's done and sold.

Thanks.

 

Who owns the ppor?

 

Owned by the same trust with the same corporate trustee. Don't sound ideal? Not sure why my advisers will suggest this last time.

 

Yes you are probably right in that the existing trust assets (being the property you live in) would be more exposed.

I guess it is upto you to decide if the risk is worth paying accounting/legal fees to setup, close down another trust structure plus the ongoing fees whilst it is open. Kind of like an extra form of insurance really.

 

Thanks Willy. I guess it's too late for this second development?

Also to transfer out my PPOR to another trust will incur stamp duty and GST as well i believe?

 

How is it ppor if you dont own it personally?

 

People think trust = asset protection
But it doesn't automatically mean that.

How is the trust structured, how was the funding structured?
Assets of the trustee will be available to creditors so it is likely that the risk is increased if the trust holds assets but does another risky project. But it will all depend on the structuring.

 

Thanks guys. It's all self funded right now. Just small projects. The structure is something like this

ABC Pty Ltd ATF ABC Trust with both me and wife as beneficiaries and her the appointor and also the sole director of ABC Pty Ltd.

Current house that we live in and new development (building a duplex) are both inside this trust.

Maybe I should consider closing down this trust after this second project and move my current house to our personal names instead.

 

that is just a broad overview of the structure. How is it self funded?
It will be costly to transfer the property now.

 

Closing down the trust ?

It owns a property. Its not your property. That will trigger a range of issues incl GST, income tax, duties. A trust lawyer needs to be consulted as there can be ways to effect this and minimise some taxes.

Common mistake I see some make is they build in a trust then decide to keep "their home". Trusts may be better when you sell all. Even blending a dev and holding can be a concern. Its still trading stock for the trust and not a CGT asset and incapable of being a main residence with CGT exemption. Doesnt matter how long you wait it wont change it. Its still trading stock and if value rises it just adds more and more tax. To get the property out means a taxable supply (GST). Often a big mess results

 

Thanks guys.

Terry_W - We have some assets overseas that was sold few years back and we moved all the cash over to Australia.

Paul - Thanks. I heard of the 5 year rule in regards to GST exemption that my accountant told me about. If i transfer the property to my personal name after 5 years, there won't be GST or something. The other two houses are all under the margin scheme.

 

That's nice. But you and the trustee are separate legal entities so how did the cash get into the trust?

 

Thanks Terry, it was done as a loan to the trust i believe!

 

Surely you would want to be sure!
Whats the security for your loan?

 

Pretty sure it is. Security will be the properties inside the trust.

 

If you have a mortgage for money you have lent to the trust then this is a form of asset protection if the project is attacked. But it won't assist if the project is attacked by the lender of the trust as you would have given a personal guarantee.

When lending money to related entities, or anyone, structure of the lender is important and can greatly improve asset protection. e.g you could have gifted money to the trustee of a separate trust which could have the lent it to the development trust and taken a mortgage over the property.

 

Thanks very much Terry. We don't have a mortgage on the money lent to the trust.

That is very interesting. With the separate trust, does it need to be the same arrangement as the current trust? Current trust has a corporate trustee with my wife as the sole director. Thanks Terry.

 

if you have lent money without a mortgage you are an unsecured creditor which is more risky.

Best to seek legal advice on something like this.

 

Thanks Terry. I will PM you once i have all the info. Should be something you can help me with.