To trust or not to trust...

Discussion in 'Legal Issues' started by Keentolearn77, 9th Oct, 2019.

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  1. Keentolearn77

    Keentolearn77 Well-Known Member

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    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
     
  2. Trainee

    Trainee Well-Known Member

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    Who would the trust distribute income to?
     
  3. Momentum

    Momentum Well-Known Member

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    Not worth it
     
  4. Trainee

    Trainee Well-Known Member

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

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

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    Just crunch the numbers
     
  6. thydzik

    thydzik Well-Known Member

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

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

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    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
     
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  8. Keentolearn77

    Keentolearn77 Well-Known Member

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    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
     
  9. thydzik

    thydzik Well-Known Member

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    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.
     
  10. Terry_w

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

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    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.
     
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  11. Keentolearn77

    Keentolearn77 Well-Known Member

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    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....
     
  12. Terry_w

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

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    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.
     
  13. Keentolearn77

    Keentolearn77 Well-Known Member

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

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

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    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.
     
  15. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    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.
     
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  16. Keentolearn77

    Keentolearn77 Well-Known Member

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    Much thanks gentlemen what a mine field
     
  17. thydzik

    thydzik Well-Known Member

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    Really good to know.