HDT or DT for shares?

im thinking i should set up a trust to hold my shares and managed funds in for future flexability... shares would be under a margin loan inside the trust

the portfolio wont be that big, probably around 80-100k id imagine and there isnt really many people who i can send the profits off to at a lower tax rate (for atleast 4-5 years)..

which type would people think is better for share trading? and would a corporate trustee be recomended?

i was thinking for max flexability id open a HDT but no issue any units for the moment and run it as a DT and just lend the original money to the trust at the same rate of interest id pay on the loan (so nil effect for me)

Note: Lets just asume that everything with HDTs gets sorted out and they run as they are now

 

Sounds fine.

Corp trustee - ideally yes.

A well drafted HDT should be able to operate just as a typical DT when there are no units on issue.

The HDT gives you the flex in future if you're going to gear outside the trust and inject the funds into the trust via unit subscriptions...

Of course get good tax and legal advice on your circumstances.

Cheers
N.

 

this is mainly for asset protection more than anything isnt it? still getting my head around that part...

well i say dont issue units at the moment as with luck, returns should be higher than 9% which means it would be positive geared, if i just lend money, it gives me the same affect as if units were issued with the addition of distributing the money where i want...

i just wonder if its really worth setting it up this early with such a small portfolio and i plan to grow my property portfolio before the shares really.... (ie the costs of forming probably $2000, running per year probably $400), these costs take away from my profit at the end of the day...

 

Someone wiser than me said start with the end in mind. Much easier to do right now than wish you did it right at the begining later.

 

We hold several IP's in the HDT, plus direct shares/managed funds

We also have a couple of IP's outsideof the HDT in personal names, I like the flexibility of the HDT

Retirement Planning
Succesion Planning
Asset Protection
Tax Planning
Ass (et) Protection

 

ive always heard it best to have seperate trusts for property and shares??? that way you can stream the profit to different people and utalise the negative gearing as possible...

starting with the end in sight is a good thing, however having a plan to get there to the end is even better....

you dont recommend a trust to someone investing $5000, so at what point do you start thinking its a good idea???

 

I agree. But there's a more fundamental reason for having separate trusts...namely that truly passive assets like listed shares and units in managed funds have a different risk profile compared with rental properties. As such there's always potential for a risk event associated with the rental property to infect the balance of assets in the trust.

I think in an ideal world you would have separate trusts...but it's always a trade off between the additional cost both upfront and ongoing and complexity. NickM quite rightly says that for some people it's overkill to have too many structures...

Assets like listed shares and managed funds are liquid and easily moved (subject to CGT issues). Real estate is, illiquid and expensive to move due to stamp duty in addition to CGT.

If it's taken someone 2 years to save $5k cash to invest then I wouldn't recommend they blow half of it on trust set up fees. They'd be better off investing the whole amount in some liquid asset to try to accelerate their wealth creation and revisit the issue down the track. The key thing is to remember to do so!

There's no hard and fast rule about when is a good time to set up structures other than to say early (but perhaps not too early if it means you've got the best structure in place but no money left to invest!). Also everyone's circumstances will differ based on their future plans and personal risk profile.

Apologies if that seems like a "non-answer" but it really does depend.

Cheers
N.

 

That's one big assumption. One big advantage DTs have over HDTs is they are tried and tested in the courts and accepted by the ATO.

For a share portfolio IMHO a DT is far preferable to an HDT.