ETF Need Help Building Investing Plan

Discussion in 'Shares & Funds' started by 15283, 15th Feb, 2019.

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  1. Hodor

    Hodor Well-Known Member

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    Potentially easier. House prices have historically been as a function of average income and interest rates within a +/-5% band. At higher interest rates house prices are a lower multiple of wage, hence adding 5% of your wage as an extra repayment has a much greater impact on reducing loan term than when they are low.

    IMO this low rate and inflation environment will result in people taking longer to pay down their mortgages with long term run on effects potentially
     
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  2. 15283

    15283 Active Member

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    I see now, makes sense. Thanks for clearing that up @Hodor

    What are the long term run on effects you believe will occur?
     
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  3. Hodor

    Hodor Well-Known Member

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    No idea on the knock on effects. My whole theory could be wrong.
     
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  4. Terry_w

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

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    I would definitely consider setting up a discretionary trust to hold the investments and then later consider a second discretionary trust being set up to hold the shares in a bucket company, Trust 1 can distribute to the bucket company and this can then lend back the money to the trust to invest further.

    The tax will be capped at 30% - so only worth doing if you are earning more than 80k or so.

    The trouble if you buy in your own name is that you will be taxed on the dividends with no opportunity to divert income and you will also be the one to wear any capital gains when sold.
     
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  5. 15283

    15283 Active Member

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    Thanks for your input @Terryw . I just have a few questions as my accountant still hasn't gotten back to me.

    1. How do I set up a discretionary trust?
    2. How much does it cost?
    3. Is the bucket company that the trust pays dividends into inside the trust or inside another discretionary trust?
    4. If the latter, will I need two trusts?
    5. What are the cons of setting up a trust as opposed to personal name? I don't plan to ever sell my shares and will be reinvesting dividends.

    James
     
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  6. Terry_w

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

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    1. Don't see an accountant for this as it is legal advice so see a lawyer
    2. $0 to $5,000
    3. neither. The shares of the bucket company should not be owned by the same trust it receives income from. Who should owns the shares should be carefully considered. Perhaps the trustee of another trust.
    4. yes
    5. Cons are the cost and the legal complexity.
    Carefully consider the tax and legal consequences of reinvesting dividends as the trustee must make someone presently entitled to the trust income and you would want to avoid unpaid present entitlements.

    Seek specific legal advice.
     
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  7. 15283

    15283 Active Member

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    As beneficial as it sounds @Terryw , it also seems like such a headache. What would be the long term effects if I simply held these + ppor in own name as opposed to trust(s)?

    I will contact a lawyer in my area and see if I can get some advice.
     
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  8. Terry_w

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

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    Basically it could come down to having more of the capital diminished by taxation.

    Imagine if you are on the top marginal tax rate and had set up a trust and bucket company - for every $100,000 in income that would be approx $17,000 exta (47% v 30%) compounding over X number of years.
     
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  9. 15283

    15283 Active Member

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    That's quite a difference. Are there any benefits to a trust in regards to protection? I.e unable to lose assets due to a nasty divorce.

    I'll contact a lawyer in my area for some advice this week.
     
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  10. Terry_w

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

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    Assets held on trust are generally not available to creditors on bankruptcy but with family law there may be not much in the way of asset protection if you control the trust.
     
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  11. 15283

    15283 Active Member

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    I see. Why is it not protected from divorce? Would that require a pre nup?

    It does seem like the way to go for tax purposes, especially in retirement phase.
     
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  12. Terry_w

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

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    Because of the Family Law Act. courts have the powers to make orders against trustees and other third parties so the assets of the trust will either be counted as an asset of the marriage/relationship and/or a financial resource of one of the parties to the marriage/relationship.

    A prenup would be the way to go for protection in the family law arena - Binding Financial Agreements they are called.
     
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  13. 15283

    15283 Active Member

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    I see, thanks for that @Terryw. Is it possible for these to be penetrated and over ruled by a judge?
     
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  14. Terry_w

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

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    Like any contract they can be unenforceable if defective and/or set aside for various reasons such as fraud, non-disclosure, undue pressure etc.
     
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