To trust or not to trust...

hi
I’m hoping this is the correct forum section

Interested in determining the financial benefits / justification to move 2 properties into a trust

Properties unemcumbered
Will cost approx 200k of stamp duty, cgt, trust setup & running costs

In a rough nutshell Would one get their money back over a 20 yr period thru tax benefits / land tax savings etc
Is there enough financial benefits to justify it

Properties approx value 1.6m
90-180k tax bracket

 

Who would the trust distribute income to?

 

Not worth it

 

Also consider the impact on estate planning. It goes into a trust, its cant be included directly in the estate.

 

Just crunch the numbers

 

what are your tax savings per year if you move it?

 

It could also be done as a debt recycling strategy.

But generally I would think the stamp duty and CGT would make it too costly, unless other non-tax reasons

 

Thanks people

Just wanted to consider it before committing with the structure of a subdivision

Me thinks it not worthwhile, i’m No expert though, not sure that there would really be any tax savings, perhaps a little if kids are beneficiaries for a few years while their in the tax free threshold (assuming that could be done) although they will have there own jobs soon, but otherwise not....

Terry is there a website or program out there that makes it easier to crunch The numbers with various scenarios / figures..... to help reach some rough projected conclusions....

OR are there examples online of....
Ie: John had 2 properties in his name for .... 20 yrs, this is what he earned / was taxed etc
Whereas.... Mary had 2 properties in a trust and this is what she received from the trust over twenty years..... (similar to those industry super ad scenarios)
Cheers

 

How much tax are you currently paying on the properties? in an ideal situation it would be possible to reduce the tax to zero with enough low income beneficiaries.

 

If the properties are paid off and you have non-deductible debt it can pay for itself in about 5 years in some instances.

I had one client who had a paid off main residence worth $1mil and wanted to buy a new main residence for $1mil, but kept the old one because of its development potential. What they did was to sell to a trustee of a fixed unit trust, pay stamp duty of about $50k, avoid CGT, because it was a former main residence. Going forward they could personally claim the interest on the loan used by the trust to a acquire the property from them - about $50,000 per year between them.
They used the cash from the sale to pay cash for the new main residence. The trust also borrowed to pay the stamp duty. They also got the land tax threshold on the trust property (NSW).

So after about 3 to 5 years, they would have been ahead.
Private rulings obtained for both tax and land tax.

As far as I know, there is no software to crunch these numbers, as there are too many variables.
A discretionary trust could divert income to a company or adult children who are not working, a nonworking spouse or to someone on the highest income tax bracket.

 

I’ve been reading up to understand children as trust beneficiaries as receiving trust income, and as I suspected it appears rulings .... 6AA’s are in place as a means for the ato to circumvent what they deem as tax avoidance,,,, assuming I read correctly, would that mean that children not yet adults would not be able to receive the income with tax threshold benefits... they would be taxed regardless....

 

minor children are taxed at 66% for incomes over $416 pa, that is passive income. But Children tend to get older at when 18 they are not earning much so can be good beneficaries then.

It is also possible for a trust to distribute to a bucket company, which pays tax, with the bucket company paying a dividend to the kids when they reach 18, with them receiving franking credits for the tax paid by the company.

 

And can people of a retired age be a beneficiary..... would they be taxed heavily / could it effect their pension entitlements....

 

Yes
it depends
yes

Complex social security rules with trusts and pensions. If your parents are on a pension and you set up a trust they could be assessed as if the trust assets are their own, if care is not taken.

 

Absolutely. EACH pensioner may be considered to be 100% entitled to the trust assets and income. Not even just 50% each. A adult child trust should NEVER distribute to pensionable parents even $1 within 5 years of potential pension age as this can trigger an assessment. Some parents need to be excluded beneficiaries too. Always seek advice incl legal advice.

I have a client who receives a distribution under a poorly drafted family legal settlement. She gets a small income annually but its not much. The trust has $3m of assets and Centrelink assess her as potentially entitled to 100% of the income (despite that it will never occur as another person controls the trust) and she fails the assets test with the full $3m counting. She can revoke entitlements and lose her income but loses all entitlement to trust capital if the property is ever sold.

There rules can be harsh but originate from a process of being fair to count trusts rather than exclude them so people can rort benefits.

 

Much thanks gentlemen what a mine field

 

Really good to know.

 

5 years of potential age or 5 years of application time? I think the main application form only ask for previous 5 years from application time..? Please correct me if im wrong

Does Age Pension recipient need to redo the main application form every year to continue being eligible? Or only one time, which is on the initial application stage. And then once approved, he will be on the system until if his situation has major change.
How about the asset income form, is that need to be done every year?

Thank you so much

 

There can be unseen complications. eg Ageing. A pensioner not eleigible for a pension at all could later be eleigibel for a part pension and even aged care and trusts can make a mess of this. Human services will continually seek information on any changes. So lets say someone forgets not to distribute to Beneficiary A and they do. Just $1000. It can be fatal 12-18mths later when detected and the pension will need to be repaid. A real robodebt. deposits to bank account can also catch people out. Had a past case where a trustee paid $Xk to a parent. Picked up by Centrelink and it was explained it was from sons trusts to Dada as a gift. Centrelink said - We will consider him a beneficiary as he isnt excluded. Theye didnt like the direct trust bank to dads bank.

 

Can this be fixed by varying the trust deed to exclude people on security payment (not mentioning his name as excluded person specifically) but only mention people on security payment as excluded group?