Help on trust or no trust

Hi,

Newbie here. Planning to buy first IP in 6 months time and maybe another in 2 years time...

Planning to give these IP to my two kids..

down the track planning to buy PPOR after say 5 -6 years..

Do i need to start trust to buy IP and to transfer kids say after 20 years...without capital gains tax...

Or is it better to buy in my or spouse name and later transfer to kids...

can you please advise..?
Thanks.

 

Why do you want to give to your kids?

If a trustee transfers title to the kids stamp duty would apply.

If you pass control it may not. But there would be no main residence CGT exempt for them and no land tax exemption in some states.

I would start off by learning as much as you can about holding property in a trust and then seek legal advice.

 

Whoever's name the IP is in (you or your wife), you'll need to pay capital gains tax and stamp duty when it's transferred to the kids. If your wife is on a lower income there may be a small advantage, but that's possibly offset by the lower gearing benefits whilst you own the property.

If the property is owned by a trust, you don't need to transfer it later so there's no CGT or transfer event. You simply give the kids control of the trust. For this reason a trust can be a useful part of succession planning. In the meantime however, owning property in a trust is costly.

The really successful investors I see don't give their kids a property. Instead they give them an education and a role model. Their kids will likely still inherit the properties when the parents die, but they'll probably already own several themselves.

 

Most people under estimate their financial needs in retirement and handing a property to your kids ex wife might be the outcome if you gift property to them. The is the bedrock to the reason why people have wills and generally leave entitlements on death.

Peters last paragraph above gets a triple like from me.

 

Consider giving them a loan instead (when the time comes). This will provide asset protection in the event of their death, divorce, incapacity or bankruptcy. Also get for estate planning on your death.

 

Thank you gents.. for valuable advise.

just curious to know how much will be the average yearly cost if I set up trust and properties in Melb, perth and sydney?
thanks.

 

$1500 initial cost and $200 pa for setting up trust is not that expensive compared with the house value...
Any other cost should i consider.?
do we need to setup trust for each property so that its ownership can be transferred to each kid down the line.

 

I charge $2750 for set up including legal advice company and tailored trust.

$250 or so annual asic fees.

Accounting fees - will let an accountant answer that.

Biggie is land tax in nsw and vic. In nsw 1.6% of land value per year.

 

Plus the cost of not being able to claim negative gearing.
Land tax often ends up being more expensive in a trust (although it might not be at first).
Depending on the state properties held in trusts may also enjoy higher council rates.

As an example, one of my properties in Brisbane costs about $3k more every year in a trust than had I bought it in my own name.

 

Trusts can claim negative gearing.

 

I agree Terry. I'd love to know how a discressionary trust offsets the losses against an individual's income though.

Offsetting todays gearing losses against future profits isn't a great outcome.

 

Tax payer A cannot offset its losses against the income of tax payer B. Trusts are the same as individuals in this regard. But an individual can use the loss of a property to offset their other income. So too can a trust - on current income.

There is also a way for self employed to do this. I might write a more detailed post if anyone interested.

 

Only if it has additional sources of income. Generally a new trust wont be able to use -ve gearing effectively and the loss will accumulate. A existing trusat with one +ve geared IP and a new -ve geared is a whole different situation. However trusts cpome witha financing problem that eventually catches up with most who favour gearing....The lender will insist that they lend to the trustee and so the new borrowing MUST add a further property to the same trust. This leads to issues with access to equity and land tax etc.

Unit trusts used to be a solution but few lenders will play the game anymore. They used to lend to the unitholders in place of lending to the trustee but now they generally only lend to the trustee which creates the same problem in a unit trust as a disc trust.

 

Not necessarily.

Trusts can borrow further just as a person can. Depending on the amount the lender may enquire what the funds will be used for and may not like it if the funds will be used by another entity - same for an individual.

There are lenders that will still lend to indiviudals where the property is owned by a company as trustee such as in a unit trust scenario. I have one settling on tuesday next week so still doable - but it is harder to borrow in this manner.

 

I know STG sometimes allows a unitholder to borrow using the trust property as security. Other than them I dont know of any others.

 

Accounting and tax for a trust can cost $800- $1500 pa where an additional rental schedule wont add much to tax costs for an individual.

 

Thats my lender of choice.

 

In NSW if the kids are beneficiaries and the properties are in NSW then it may be possible to take advantage of a transfer fee and not be hit with stamp duty. The transfer fee is only about $150. This transfer will allow you to transfer the property out of the trust and into the name of a beneficiary. I've just been through this with the NSW OSR. I've often wondered whether other states allow this.

 

This is new to me unless you are talking bare trust?