So... I'm off to Dymphna Boholt's day tomorrow

Did this seminar cost money to attend?

 

No it's free

 

Five years ago, I went to her seminar. It gave me the intro to Trusts.
This is the diagram she was proposing


I saved Terry's comments regarding this setup. Here we go... it is a good explanation.
"
I think the structure in the 2nd diagram is pretty good and the way I have done my structure, pretty much.

There is a trading company with its own trustee which is good if this company is sued. The shares of this company are owned by a separate trust, the Piggy Bank trust.

The investment trust has a separate trustee. With the shares of this company being owned by the piggy bank trust. I would just have one director of this company as 2 or more would add unneeded risk.

Having a personal trustee for the Piggy Bank trust is ok as all this trust does is own shares and there are no risks with owing shares.

The bucket company can be set up later to take excess income from the trusts when the individual rates exceed 30%. Shares of this are owned by Piggy Bank trust which is ok.

It is a simple structure which can be added to later.

If a tenant is able to sue the landlord then that trust's assets can be at risk. The company will be hit with the lawsuit, but it will be indemnified out of the trust assets. There is a risk that the director could be liable in some instances such as criminal acts or OHS breaches, and the director could therefore possibly be sued (and/or imprisoned!) but the person would generally own nothing.

The person would own the shares held on behalf of the Piggy bank trust but this is as capacity as trustee and these would generally be unavailable to creditors of the person.

If the trustee of the investment trust is sued, the appointors of the other trusts would immediately sack that company as trustee (the deed would automatically remove the trustee usually if insolvency or administration etc) and appoint a new trustee. The other investment trust assets would usually be out of reach of the creditors of trustee company as trustee for investment trust 1.

overall, not a bad way to structure it.

"

 

Did I write that Devank? I wouldn't disagree with any of it now. But the diagram appears to show one company acting as trustee for multiple trusts - if this is the case I wouldn't recommend that as it will be a problem working out what goes where later on.

But there are other considerations too - estate planning, especially on death.

 

Thanks guys for the share on this. So many investors (including myself) unfortunately start out buying a home and then building an investment portfolio thereafter, with little to no consideration for trust-company structures upfront.

The problem is you get a few properties down the road and then realise how expensive it is to try and retro-fit a trust strategy for all those existing properties. I guess it can be taken as a lesson learned, and perhaps for future investment decisions, those ones can be bought in trust-company structures.

 

Oh the negativity, or is it jealousy ? We would all love to be that successful and DB has certainly been there and done that. Having had IP's for many years I have to say from my own experience when I started that I found it extremely hard to get any reasonably useful information that was actually close to believable. Being a seminar junky every speaker told of riches beyond my wildest dreams and made promises of lamborghinis and yachts. Being time poor my learning curve was long and slow and it appeared that nobody was willing to show me "the tricks" of the trade. Having seen DB some 9 years ago I dismissed her ramblings as just that. Then 4 years ago went again, invested some well earned money. For me, that one investment allowed us to go straight to development as we had studied and learned this form her. Now some will say you wasted your money, you could of read some books, you could of went on a forum. I'm not a good book reader and it took me quite a while to find any decent forums like SS and this. For anyone that comes across these first up great, for you but for others that found it hard to find good info I thoroughly recommend a DB course to fast track your mindset and knowledge. If you dont have the latter you may simply blow 3 or 4 times that amount on your first foray into the property market. I have seen many friends go into the property market and loose their shirts and their shorts and blame the person who told them about it. If only they had invested in themselves.

 

I started property investing by watching one of her courses and i must say it was/still is very useful (i didn't pay for it though, my old manager attended her 3 day course that cost 3k and gave me the course dvd). I remember freaking out after listening through the asset protection section.
There were a lot of other useful things in the course including, ways to increase rent, subdivision process, how to identified up and coming suburbs ect (nothing you can't learn by browsing this forum but just presented in a structural manner).
I think were people get it wrong is that they expect this course to make them rich.
This course is like teaching you how to code, and just because you know C++ doesn't mean you're gonna come up with the next facebook.

It is all about applying what you've learnt from the course. My old manager now owns a portfolio of 5m+ properties, with majority being in blue chip Sydney and central coast. He though the course is well worth it. I am just happy I got it for free.

 

Not only is it expensive to start moving properties into trusts, the asset protection of doing so is dramatically weakened because you are doing a related party transfer which is then subject to the clawback rules. Best to get things right from the beginning.

 

one trust per property may not always be overkill. Let me explain why.

If you have purchased a property in a fixed unit trust with the intention to ultimately move the property across to an SMSF (via a redemption and issue of units in the trust or transfer of units to the SMSF) then having two properties in the one unit trust may present an issue.

How ?

Well let's assume you have two properties both worth $450k. The debt on property one is NIL and the debt on property two is $150k. Now if both properties are in the one trust then you can't transfer any of the properties across until the debt has been repaid.

If the properties had been held in separate unit trusts you could transfer the property without the debt to the SMSF. Then transfer the second property across at a later stage if that is desired. A timing difference but that could mean a tax difference.

So not always overkill.

 

Its not necessarily wrong buying in your own name, its dependent on many things, one shoe does not fit all.

I never purchased in Trust until I started developing property, now this makes sense, but prior to this purchasing in our own name worked out well.

MTR

 

MTR - But all your existing properties are now exposed to creditors if your development fails whereas they could have been safe had they been in discretionary trusts from the beginning.

And another benefit of one property per trust is land tax, especially in QLD where each trust can get its own separate threshold. It may even be advantageous to have 2 trusts per property!

 

As a newbie I thought the first two-thirds of Dymphna's free one day seminar was worth going.

I haven't been able to communicate the trust structure she talked about, which I wrote on my notes, to my accountant, however....I remember he said I was overthinking it - I didn't even have any property yet lol. "Go buy one, the come back."

I'm going to purchase a cheap $200-$250k townhouse next month just to go through the process.

 

Overall this structure is pretty sound.
Only change I would make would be to use seperate trustees for each investment trust.
Maybe she did that to minimise setup costs and ASIC costs.
(I'm not condoning 1 property per trust either)

 

Hi Terryw
Fair enough.
Howeve,r I am selling and buying all the time. Many properties in personal names have been sold and I guess on the flip side I benefited from the 50% CG discount. Most of my properties are now in Trust.

I never started with Trust structure because I found it too complicated in the beginning, of course now we would not buy in personal names unless there were some major benefit to this, dependent on the scenario.

MTR

 

My accountant advised, don't buy a negatively geared investment property under a trust as you cannot offset the losses against your individual income. If all my IPs are negatively geared after depreciation, is there any point in moving these IPs into a trust?

 

the accountant has advised as though all trusts are discretionary trusts. It is true for a discretionary trust the losses are trapped in the trust.

But did they discuss with you a unit trust ?

a DT holding a negatively geared property can also be ok for business owners with a profit making business trust. business trust distributes from profit making trust to loss making trust holding the property. appropriate family trust elections are made to meet the income injection test.

losses from profit making trust are absorbed by the loss making trust. so in some cases it is ok.

 

I remember you posting in the past about the financial difficulties you and your husband faced with his business during gfc. if there might have been some personal guarantees given at some stage and there was no capacity to meet the business debt all the properties you spent years accumulating would have been put at risk by having them in your personal names.

it's one of those things where most people get away with it, until they don't. a bit like insurance.

 

exactly. pretty powerful stuff if done correctly.

 

No, I didn't get into a discussion on what is an ideal trust for me. I merely asked him if I should buy my next IP in a trust as I have almost reached my land tax thresh hold in state XYZ. His simple answer was, just pay the land tax and reduce your taxable income

 

sounds like awful advice. but then i dont know your circumstances. If you are in QLD could be terrible advice.