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What are the benefits of purchasing property in a discretionary trust?

Discussion in 'Legal Issues' started by TyroneS, 6th Jul, 2015.

  1. TyroneS

    TyroneS Well-Known Member

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    I would like to know if I were to purchase a property and hold onto it for long term like pass it onto my children, is it wise to purchase it in a discretionary trust?

    What are the benefits and disadvantages of doing this?

    Thanks in advance.
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    You could also will a personally owned property to a testamentary disc trust upon your death to achieve the same outcome. Importantly however would be the issue of who would control the trust assets after your death and until you wish the kids to take control (if at all). What happens if they fall out ?

    The difference between the acquisition in a DT and the TT will is that you would own the property in one case and in the other the DT owns it. That is an asset protection issue during your life HOWEVER if you are contemplating asset protection your future ex-Mrs T may still have claim upon the trust assets. The DT may provide some creditor protection but that too may be lost.

    Seeking personal legal advice is a must.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It depends.

    Advantages of a DT include 3 main ones
    1. taxation
    2. asset protection
    3. estate planning

    Income can be streamed to a wide class of beneficiaries.

    No one has is entitled to the income or capital of the trust until the trustee decides so if a beneficiary were to become bankrupt a trustee in bankruptcy could stand in their shoes, but not be entitled to any trust assets.

    The trust survives your death and its assets do not pass via your will. Generally the trust assets are safe if your will is challenged (but not if you have a connection to NSW where they can be attacked).
     
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  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The TT would actually be a better outcome because of s102AG. Children (minor) beneficiaries would be taxed at adult rates. Greater protection on divorce of children too.
     
  5. TyroneS

    TyroneS Well-Known Member

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    Thank you for all your advice Terry and Paul. Looks like there are more benefits in purchasing property in a trust over buying in our own names.

    Also if say one was earning a high income in the 100k+ bracket, would there still be tax benefits to offset the PAYG income?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    A trust is a separate tax entity and losses are trapped in the trust.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You should also ask about the down sides
    - losses cannot be used to offset personal income = cash flow draining early on
    - complexity. trusts are very complex
    - land tax - in some states you may end up paying $8k extra each year in land tax. Other states you may be saving money
    etc
     
  8. WestOz

    WestOz Well-Known Member

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    Interesting topic, whilst no guarantee they'll fully appreciate it, build upon whilst enjoying benefits and pass on to my grandchildren and theirs, everything I'm doing at the moment I do for my ancestral future, personally happy to live a simple life for their benefit, guess its the ding in me.

    Went and seen a lawyer last week to setup Trust and Will after recommendation of a financial advisor, response was I've already purchased the properties in my own name so trust is a waste of time, just setup the Will.

    Don't want my kids to know what they might get if I pass on, want them to be motivated to self achieve their own goals rather than bumming around waiting for the old man to kick the bucket, would rather they got nothing till 25-30 years old, when they can hopefully appreciate it rather than blowing it on crap.

    Whilst I don't like my ex she's my kids mum and also wants the best for their future, set her and both kids (18 & 14) up as executors so they all have a say, but something just doesn't feel right, the T's don't feel crossed, I's dotted.

    Read the above, no idea what TT & DT is, brain is well, never heard of it before, why not after paying so many to advise me. So-called professional local legal advise provides little confidence, how many do you keep meeting before receiving comfort that all will be good if I get t-boned by a truck tomorrow.

    Depressing thought that my effort may all end up for nothing...
     
  9. TyroneS

    TyroneS Well-Known Member

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    Thanks Terry. Yes that's what I was told by an accountant and with my existing trust I still have some losses trapped in there from purchasing shares years ago. I guess if I sold a property with capital gain from, then I could use that loss to offset it.

    I'll definitely be seeking advice on this. Should I be asking a solicitor or an accountant about trusts?

    Thanks,
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Trusts are legal relationships so anything other than tax ask a lawyer, for tax aspects ask a lawyer or a tax agent.

    The capital loss can offset a capital gain, but there are various requirements for a trust to carry forward a loss.
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I have seen shocking wills drawn up by lawyers - wills that were invalid. Perhaps you should seek a second opinion and/or do a new will that incorporates a testamentary discretionary trust (perhaps 3 separate ones). If you have super, insurance proceeds and your assets going into the will the total could be in the millions. You may not want to leave it to your wife in case she marries, or your children in case they end up bankrupt or divorced etc. Not to mention the considerable tax advantages.
     
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  12. WestOz

    WestOz Well-Known Member

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    Wow! Thanks Terry, covered many of the concerns I raised with the lawyer there, all for nothing it seems, I'll definitely be seeking confidence from an alternate lawyer.
    Thanks for making me aware of the term "testamentary discretionary trust" sounds like priceless information for everyone.