What mistakes did you make when you first started in IP's?

I have followed a few of Terry's legal tips on trusts but they get a bit too technical for me to understand at times.

 

Id then suggest paying someone, could be him could be someone else, for an hour or 2 of their time. Ask all the questions you need, come out with a good understanding and its well woeth the cash.

 

That's the plan, I'm 0 for 2 so far, no call backs from the solicitors!

From what I've read I believe a discretionary trust is what I'm after. I take the short term hit by not being able to claim negative gearing but down the track after the children turn 18 I can distribute income to them to reduce the tax liability. My main concern is as beneficiaries if they get divorced the assets of the trust might be up for grabs.

 

Do you have a business? If so there are apparently ways to use up income losses in a discretionary trust that owns property by flowing through dividends from your business. Im not sure of the exact methods but it can be done

@Paul@PFI can prob clarify. I dont have long term negatively geared investments so dont do the above but ive heard about it. Could be wrong though

 

This will depend on how the trust is structured and how it is transacted. Certainly safer than them buying assets in their own names. But not as safe as being a beneficiary of a testamentary discretionary trust.

 

Trust A could possibly distribute to Trust B, but there are some complex legal issues for the distribution to be valid. Trust B basically has to have the possibility of being vested before trust A, otherwise the laws against perpetuities will mean the distribution is invalid. Also some tax issues.

 

I have tried to keep the tips as nontechnical as I can.

 

Thanks. i understand there are a few things that need to be done correctly to make this an option, most importantly a completely legal option. Its good to know its possible though.

 

By nature though they have to be general, not referring to anyone in particular but ive always found the reluctance of many people to pay for specific advice vs general internet opinions to be odd.

 

no, some were 500k, $400 percent rent
also interest rates hit I think close to 10%

 

No business anymore, just plain old PAYG.

 

You mentioned this one previously but my understanding is that I have to be dead before the trust income is distributed to the kids?

 

Got it. Serviceability has been a big hurdle for me this past year so I need to find a buy with good rent to satisfy the lender.

 

I have to pay a solicitor to set up the trust regardless, just like any profession I've met some great ones and some not so great. I've also been burned on a previous purchase by a slack solicitor so I like to go in armed with as much knowledge as possible. I'm not a time waster I promise!

 

Someone has to die first - not necessarily you

 

This sounds like the start of a conspiracy Terry....

 

Anyone with assets should consider a testamentary trust. You should encourage your parents and your spouses' parents to incorporate one in their wills. There are even ways to maximise the size of the trust at death so as to maximise the benefits.

 

Taxation benefit?

Also what are the rough costs for a discretionary trust?

You previously told me a TT was somewhere between $1,500 and $3,000 to set up, my wife and I already have a will which was drafted by a will specialist (according to his qualifications on the law society website), does a well drafted will reduce the TT costs?

 

Testamentary discretionary trusts have all the usual tax benefits of a intervivos discretionary trust - streaming income to different beneficiaries at the discretion of the trustee. But they also have added tax benefits of 'excepted trust income' which enables minor children to be taxed as adults.

Say you left $1mil in property to your wife. She would then own the property and receive say $50k per year in rent. She may lose $25k in tax and end up with $25k.

But say you structuring your will so the $1mil of property ended up in a testamentary trust. $50k income could be distributed to 2 kids who may pay $1000 each in tax. If you had a 3rd kid there would be no tax payable. You just saved your family $25k per year. Plus if your wife remarried it would be much harder for the new spouse to get his hands on your money.

You will need a whole new will if you want to incorporate a testamentary trust.

I charge $550 for a meeting and $1100 for a discretionary trust - with any terms to suit your needs.

 

So effectively I require two trusts:

1) A discretionary trust while my wife and I are alive in anticipation of our children turning 18 and being able to share the tax burden as well as protecting the assets from any failed relationships they may have (I want to give them a house each but want to retain legal control)

2) A Testamentary Trust in our will so that in the event either die prior to the children reaching 18 they will be taxed as adults and eligible for the tax free threshold