Trust as a single, no kids

Hi all

Wondering if anyone can shed some light around discretionary trusts when there are limited beneficiaries available to distribute to.

I currently have 3 IP in my own name and am looking to purchase a fourth. I am considering purchasing in the name of a trust with a corporate trustee (yet to be created) however I do not have any beneficiaries save myself, the corporate trustee and my sister though distributing funds to her may impact the family tax benefit she receives.

My question basically is this; does the benefit involved in creating a discretionary trust with a corporate trustee for asset protection and avoidance of secondary stamp duty and capital gains tax outweigh the cost in setting up such a structure in my situation?

Any advice would be appreciated, I will obviously talk to a licensed professional regarding this as well.

Thanks in advance,
Carl

 

Why do you need asset protection?
How do you avoid capital gains and secondary stamp duty?
Will the property be negatively geared?
Is it likely that you might have a partner or children in the future?

 

Basically future protection against litigation, not that anything indicates that this will occur in future. I’d avoid secondary stamp duty by purchasing It in the name of the trust/corporate trustee now rather then in the future. (If I was to set it up later, I would pay stamp duty now in my own name and again when transferring it to the name of the trust) capital gains I probably should’ve explained better, if I wanted to transfer the property at a later date from my name into the trust name, capital gains would apply as it’s treated as a sale.

The property would be positively geared from the start.

Yes having a partner and kids in the future is likely but no immediate plans at present.

 

The tax benefits of holding in discretionary trust require you to have lower tax beneficiaries at the time the income/capital gains are taxable - so although you aren’t married currently you may have a spouse and children in the future and they could be a class of beneficiary for the trust. Ie. Spouse of Carl D, children of Carl D etc.

Note also you could have a corporate beneficiary which could receive a distribution from the trust and pay a lower rate of tax than you as an individual.

One of the potential downsides is land tax - depending on what state you are in the trust may not get a land tax free threshold. If you have already exhausted your threshold in your perks like name this might not be an issue.

Regards,

Jason

 

See

Legal Tip 190: Setting Up a Trust When You Have No Family Legal Tip 190: Setting Up a Trust When You Have No Family

 

What is this secondary stamp duty and CGT you speak of?

 

Hi Terry

Thanks for the link to the other forum post!

By secondary tax/capital gains I was referring to having to pay stamp duty twice if I purchase the property in my own name now then transfer into the trust at a future date. Similar to this, (albeit not really secondary) as far as I’m aware Capital gains tax would be applicable when transferring the property from my name to the name of the trust at a future date.

 

Yes that is right, any transfer to a trustee or a declaration of trust would generally trigger both duty and CGT - but doesn't necessarily mean you shouldn't do it.

 

If you are planning to transfer it in the future why wouldn’t you just hold it in a trust from the beginning?

 

Could buy in a company structure?

 

Basically because of the initial set up and ongoing costs as well as only really having myself to distribute the funds to currently. According to my accountant, I wouldn’t benefit from a trust until I had kids who were older than 18, though I don’t know if this is entirely accurate.

 

Mm I was thinking that but no CGT discount and I’m under the impression the money has to stay in the company name or taxed once at 30% then once again at the beneficiary’s marginal tax rate.

 

Trust CG can get the 50% CGT discount. It distributed to a company it cannot though.
There is no double taxation if the company receives income and then pays a franked dividend as there are franking credits for the tax already paid

 

But the final tax rate could be around 58%

 

It could also be $0

 

And if the land is in NSW the trust would pay 1.6% land tax on every dollar of land value. When owned personally the taxpayer has a land tax threshold.
This is often reason why a trust may be a poor choice. It could easily turn many +ve geared property to -ve geared.

The difference can be up to $11,980 each year merely based on a trust being owner rather than some individuals or a company

 

No I don't think so.
Many of us here got scared into the whole trust thing 20 odd years ago when it was being pushed a lot on the forum by people with an agenda to sell them. Since then believe many people including myself have decided the benefits of a trust don't outweigh the cost of setting up and administering every year. No ASIC fees and extra accounting fees are payable if you keep things simple and buy in your own name with a mortgage. I generally don't recommend using a trust for asset protection if you're single with no kids (unless you're an obstetrician)

 

I am a lawyer that sets up trusts, but I should point out that I don't recommend them very often. The short answer when asked should I buy this property in a trust is - probably not. Not unless there are good arguments for it.

 

I would estimate I discuss and advise 80% or more out of a discretionary trust. One of the more problematic beliefs is that a trust will confer greater asset protection. It may. But in many cases its misunderstood and needs quality legal advice.

 

Thanks for your tips everyone, it appears that there are too many "what ifs" currently in relation to a partner and kids etc. and not setting up the trust at this stage certainly seems the best cost effective solution for the time being.