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Pros and cons of "trusts"

Discussion in 'Accounting & Tax' started by giswal22, 16th Nov, 2015.

  1. giswal22

    giswal22 Well-Known Member

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    Whats the go with trusts? I read a lot about how i should purchase my IP's in a trust but what's the pros and cons with them?

    Why should or shouldn't i?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    See all my legal tips for starters.

    There are 3 main reasons to set up a trust.
    1. To benefit the family unit as a whole in a tax effective manner
    2. to reduce the chances of any one member losing the family wealth if they became insolvent
    3. so that the beneficial doesn't have to change hands at death of any family member.

    Other advantages are that land tax can be reduces in some states, such as QLD.

    Disadvantages
    1. trusts are complex legal relationships and are little understood
    2. If there is a loss that loss cannot be used to offset income of family members
    3. Land tax is often more, in some states such as VIC, where a trustee owns land
    4. Cost is generally higher to run than buying in an individual name, plus legal advice will be needed from time to time
    5. tax side is also very complex.
     
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  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Trusts are a sophisticated manner of ownership (not a structure in the true sense) and may complicate what would otherwise be a straight forward but fixed investment. Done badly it could also be a disaster. The benefits can be overstated or even non-existent for some and the costs will always be slightly more than personal ownership. But such a manner of acquisition may protect and preserve some benefits. Everyone is different.

    By all means, do some reading to understand the issues but then discuss your plans with your tax adviser to determine if there are merits for then seeking advice on any legal aspects.
     
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  4. giswal22

    giswal22 Well-Known Member

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    Would it make much of a difference if multiple properties were involved as opposed to just one?
     
  5. D.T.

    D.T. Adelaide Property Manager Business Member

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    Of course it would - because then income tax, land tax etc starts to become an issue.

    I'm not an accountant or lawyer, and it sorta depends on where you're buying and what your circumstances are, I generally advocate buying in individual names til land tax threshold is reached then repeat with trusts.

    Avoid IPs in joint names.
     
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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    As DT said above the more assets the more tax becomes an issue, but also the more important asset protection becomes.
    But that doesn't mean you should use a trust to hold property.

    This is not the sort of question that can be answered with a yes or no but with a 'it depends'.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    There are very sound reasons why NOT to have more than one property in some trusts and for others it may not be a problem. However like all decisions you need to consider not just short term but longer term also. Or what may happen if ??? (eg Divorce, death) For example in two properties in a unit trust can affect CGT issues if one property is sold and the other kept. It may also taint the trust so that super money can never acquire an interest...In a Disc Trust there can be issues with equity release later and it may affect the number of lenders available. And if the trust has human trustees the lender issue may become a bigger problem. Loads of considerations when it comes to any form of trust or any structuring issue for that matter.

    Only personal advice can answer your questions. Its a bit like asking about a health issue online. You may end up bombarded with meaningless issues, fear and even unqualified views or the views of a nutter or quack and even over-complexity yet never quite address the simple issue that is the concern. You then walk into your Doctor fearing cancer of the throat for a simple diagnosis of antibiotics.