Legal Tip 11: Other legal ownership structures

Discussion in 'Legal Issues' started by Terry_w, 29th Jun, 2015.

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  1. Terry_w

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

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    Other legal ownership structures (non individuals)


    Last time I focused on the different ways to own property in personal names, see


    This time it is the non personal. Basically there is just two

    1. A company

    2. A legal person acting as trustee

    The Trustee could be any one of the following:

    1. a person

    2. two or more persons

    3. a company

    4. two or more companies (unusual)

    5. a person and a company (unusual)

    The trustee could be acting as trustee for any of the following trusts:

    1. Discretionary trust

    2. Unit trust

    3. Hybrid

    4. Self Managed Superfund

    5. Bare trust

    6. Custodian trust

    These are the broad types of trusts with different types of each. Unit trusts could be fixed or non fixed for example. There are 4 broad types of discretionary trusts, multiple different ways to structure a hybrid etc.

    Many of the above trusts could be set up under a will too - then they would be a testamentary discretionary trust etc.
     
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  2. TyroneS

    TyroneS Well-Known Member

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    Hi Terry,

    Thanks for sharing this. I would like to know the benefits of putting it in a discretionary trust versus buying property in your own name?

    I'm purchasing my 2nd property and deciding whether it's a good idea to purchase this next one in a trust?

    Also what are the questions I need to be asking when I am borrowing money for the trust to purchase the property as well?
     
  3. 10in10years

    10in10years Member

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    Thanks terry, how does buying with these structures effect tax issues, ie depreciation and cgt? Also if it is negative or positively geared, can the interest expense still be deductible?
    Sorry if these are really basic questions for you guys.
    Cheers, Steve
     
  4. Terry_w

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

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    The owner of the property claims the costs. For tax purposes a trust can be considered an owner. If there is a loss it cannot be distbruted to other tax payers. Income and CGs will flow through a trust to beneficiaries but a company will be taxed.
     
  5. Switchtronics

    Switchtronics Well-Known Member

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    Hi Terry,

    Would you think purchasing a property in a company as trustee for a discretionary trust would be effective for asset security and future purchases if it's likely to be positively geared in the short term? The company receives a a distribution that could offset the negative gearing at first and buying with the trust would keep the 50% cgt and keep losses locked into the trust.
     
  6. Terry_w

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

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    It all depends - what are you trying to protect against and have you considered all the other issues - there are about 12 main ones such as land tax, succession during your lifetime/after death, income tax, cgt etc
     
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  7. Switchtronics

    Switchtronics Well-Known Member

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    Can I call you tommorrow? Sent the finance stuff through to you just want to put the right details on the contract. No land tax in n.t. was considering unit trust for succession later on into super and cgt saving.
     
  8. Terry_w

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

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    Yes but I charge $660 for a consultation.
     
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  9. mr_alex

    mr_alex Well-Known Member

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    Hi Terry, could you give some examples of protection needed where a company as trustee would be a suitable approach?

    Would the main purpose for this be if you were in a high risk of litigation through your work or business? If you were in a very low risk field, would there be much point?

    If property was purchased through a company, couldn't the company still be sued? Say by one of the residents? And then all the property that the company owns be at risk the same if purchased in own name?
     
  10. Terry_w

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

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    There seems to be a general confusion out there about trusts and asset protection.

    There are 2 aspects to it.
    a) the legal owner of the asset getting sued
    b) a beneficiary of the trust getting sued

    The legal owner of trust property is the trustee. They could be sued by tenants if the property is held in a trust or by creditors of a business if the trust is operating a business. The assets of the trust could be lost. But also the personal assets of the trustee could be lost too. This is why companies are favoured as trustee where the trust assets will be risky in terms of getting sued. If you are trustee and the tenant breaks their back your non-trust assets could be lost.

    There is generally little risk of getting sued if the trust only holds shares, especially exchange traded shares. Where the trustee holds shares in private companies there is a risk of shareholder disputes and trustees suing other shareholders.

    On the other side if personal bankruptcy. If someone sues a beneficiary for defamation, for example, the assets held by the trustee of a discretionary trust are generally not at risk of falling into the hands of the creditors of this beneficiary.

    If you are the trustee of the trust and you are sued for defamation, or anything not related to your role as trustee then if you end up bankrupt the assets of the trust would not fall to your creditors either.

    (note there are exceptions galore to the above, so only take asset protection advice from a lawyer).
     
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  11. mr_alex

    mr_alex Well-Known Member

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    Thanks Terry, so looking at above, I'm understanding if company xyz has purchased several properties as trustee for a trust, the company is otherwise non trading, a tenant decides to sue company xyz, then all of the trust's assets are now at risk? - and in this situation there would be no more asset protection compared if an individual was trustee and being sued ( assuming no non trust assets were held by individual)
     
  12. Terry_w

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

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    There is extra protection be ause the individuals personal assets would generally be safe
     

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