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help - Trust fund stuff etc for newbies..

Discussion in 'Estate Planning' started by jellybean, 29th Mar, 2011.

  1. jellybean

    jellybean Member

    Joined:
    29th Mar, 2011
    Posts:
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    Location:
    perth
    Hello everyone out there,

    I am looking to start up a discussion and hopefully get some help at the same time.

    Yes, I am aware that I should speak to a lawyer and of course an accountant (more about this later).


    I have been reading whatever I can get my hands on (via websearching, forums, books-books and more books). But I am now so confused and worried that if I don't get the right help now - it's going to be too late and far too expensive to sort out any mistakes I might make from now on.

    It's very hard finding a good accountant (sorry if you are an accountant but from my point of view I haven't been successful in finding a good one). That's why I want to be more prepared.

    Here are my Questions;

    1. Should I set up a trust fund.
    2. What type or types would best suit our situation.
    3. Any examples of structures (once the trust is set up) - can't find anything, anywhere about this - for mum and dad investors.
    4. Future proof - should we set up a 3rd generation will (how does this tie into family trust fund)
    5. Land Tax - (this question ties into Unit trust) see below
    6. Discretionary trust with corporate trustee and unit trust - how does this work (need lots of information here), including how the structure would work after the trust/s are set up
    7. Future purchases - buy more investment homes (preferably positive geared). and
    8. Do we open up a new unit trust for each new property purchased.
    9. We have some shares (in both our names), can we move them into a family trust fund - how would we do this and what costs would be involved?
    10. In regards to previously purchased properties in Victoria, should we transfer these into trust fund (cost involved i.e stamp duty, land tax)?
    11. If we buy investment properties today under a unit trust, can we somehow move them into a SMSF in the future.
    12. How does a discretionary trust, purchased a unit trust to save land tax and buy an investment property (how does this work).
    13. If we set up a family/discretionary trust now, do we just keep adding unit trust for each investment property.
    14. Does anyone have a sample , diagram of what it all could look like on paper.
    15. If were to set up Discretionary trust with corporate trustee ($2.00 company), I am still confused by what a corporate trustee does -

    Will this mean that the Discretionary trust lose the 50% gst tax discount and what is the small business cgt?

    16. How does the type of DT with cT work? Do we pay dividends to share holders (I.e mum, dad, kids – tax 30%). Or do we only use the DT side of things to divert income to Beneficiary (taxed at each person own tax rate)?



    Here's my situation;

    Currently live in a small town in WA (therefore can't personally go around and talk to accountants - need to be able to contact them via email or phone ). No idea who's a good accountant for my situation. Any suggestions????


    Partner earns $200,000 p.a + bonus
    Myself earn $20,000 p.a + no bonus
    We have 3 children (school age)

    2 negative geared properties in Melbourne
    Some shared in both our names
    Super is stuck in Military Super (as far as I know we can't get this out until retirement age in another 10 years).


    Anyway, as you can read, I have alot of questions, alot of things to think about and would appreciate any help. I'm also hoping this thread will help other people - surely, I'm not the only one confused.

    Thanks in advance.:p
     
  2. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    Wow, that is a lot of questions.


    Here are my answers





    1. Should I set up a trust fund.


    You should research and decide yourself based on your situation.



    1. What type or types would best suit our situation.
      Its very hard to say, but probably a discretionary Discretionary trust, or unit trusts with units owned by a DT.

      3. Any examples of structures (once the trust is set up) - can't find anything, anywhere about this - for mum and dad investors.
      Not sure what you mean here. One example is a family with dad as trustee of a discretionary trust owning a house.

      4. Future proof - should we set up a 3rd generation will (how does this tie into family trust fund)


    The future is difficult to predict. Laws will change though.
    A will is separate to a trust. Assets held in trust do not form part of your will. Any assets personally held, such as your existing properties, can be left via a will and you can set up a trust in your will = a testamentary trust. This trust can be discretionary or fixed, depending on your wishes. Income to minors from a testamentary trust is very tax effective and there are considerable asset protection advantages.




    1. 5. Land Tax - (this question ties into Unit trust) see below
      Land tax varies from state to state. In NSW discretionary trusts do not get the tax free threshold. Only fixed trusts do (not all unit trusts qualify for this).

      6. Discretionary trust with corporate trustee and unit trust - how does this work (need lots of information here), including how the structure would work after the trust/s are set up
      The trustee company is the legal owner of the property. Any income will flow into the trust. The company would not declare this money in its tax return, but the trust would. The trustee is just holding the property for the unit trust which is really the unit holders.


      7. Future purchases - buy more investment homes (preferably positive geared). and


      depends on your situation. Discretionary trusts are useful for asset protection and tax minimsation. Unit trusts are not good for these as there are fixed entitlements. But a unit trust with the units owned by a discretionary trust is a good way to go as it is easy to transfer the units. This can possibly be done without having to pay stamp duty.
      8. Do we open up a new unit trust for each new property purchased.
      You could. This would make each property separate and easier to transfer later.


      9. We have some shares (in both our names), can we move them into a family trust fund - how would we do this and what costs would be involved?

    Shares can be transferred, sold, to the trustee of the trust. Stamp duty and CGT may be payable.



    1. 10. In regards to previously purchased properties in Victoria, should we transfer these into trust fund (cost involved i.e stamp duty, land tax)?

    Stamp duty and CGT based on market values would probably be invovled. Little asset protection too.



    1. 11. If we buy investment properties today under a unit trust, can we somehow move them into a SMSF in the future.


      Yes, the units may be able to be transferred to the SMSF. In NSW it was once possible to do so without stamp duty in some circumstances, but the property had to be unencumbered. Not sure on the rules here.
      12. How does a discretionary trust, purchased a unit trust to save land tax and buy an investment property (how does this work).
      I don't know anything about vic, but in NSW I don't think this would work in saving land tax – though I haven't looked in this in any detail.


      13. If we set up a family/discretionary trust now, do we just keep adding unit trust for each investment property.


      You could do that. All units could be owned by the same discretionary trust. But this would be keeping all your eggs in the one basket. If the trust were to be sued somehow these units could be at risk.
      14. Does anyone have a sample , diagram of what it all could look like on paper.


      There are a few books around such as the Trust Structures Guide by the Taxation Institute.
      15. If were to set up Discretionary trust with corporate trustee ($2.00 company), I am still confused by what a corporate trustee does -

      Will this mean that the Discretionary trust lose the 50% gst tax discount and what is the small business cgt?


      A trust is not really an entity. It is not a person so it cannot own anything. The trustee is the one that owns the property. Companies are considered legal persons (try marrying one though) and so the company name will be on title to all trust assets. At tax time it is all the trust though.


    The 50% discount would still be available under a trust with corporate trustee.


    1. 16. How does the type of DT with cT work? Do we pay dividends to share holders (I.e mum, dad, kids – tax 30%). Or do we only use the DT side of things to divert income to Beneficiary (taxed at each person own tax rate)?
      Pretend the company doesn't exist. It is the trust that earns the money and this is distributed according to the trust deed.


     
  3. Dolfinwise

    Dolfinwise Well-Known Member

    Joined:
    30th Sep, 2009
    Posts:
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    Location:
    Brisbane
    Go for a drive.

    My suggestion is you need to drive or fly to the nearest major centre for a day. Set up and interview 2 or 3 accoutants in a day and choose one. All decent CPA's or CAs should have no problem recommending a solution for you but they will need lots more information that you have posted so far to make a good decision. It will be well worth your travel time to get this done well and get all the answers to your questions.

    You are right. This is all too complex to sort out without help.

    Regards
    Jason

    Brisbane Financial Planners | Financial Advice | Financial Advisor
     
  4. jellybean

    jellybean Member

    Joined:
    29th Mar, 2011
    Posts:
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    Location:
    perth
    Loan agreements

    Thanks Terryw, for answering all my questions and making it all so much clearer.

    Sorry it took me so long to get back to this site. Unfortunately, I have been side tracked doing other things.

    I do have just a few more question.

    Loaning Money

    Let's say I set up a discretionary trust with trustee company. I want to buy an investment property. I get an LOC then lend it to the trust. The trust uses that money for a deposit for the investment property.

    Do I need a formal loan agreement (so that the trust can pay me or the bank back)? Can I just type up a 'resolution' or do I need to see a solicitor for a formal agreement (what would this been called?)

    and

    Would I need 1 or 2 loan agreements (1 for the LOC and 1 for the investment property home loan)?

    Sorry if this is confusing.
    I really appreciate your responses.
    Thanks so much.





    .
     
  5. Terryw

    Terryw Well-Known Member

    Joined:
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    Posts:
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    Location:
    Sydney
    hi JB

    You should have a written loan agreement with the trustee of your trust if you wish the trustee to be able to claim the interest. You should do a resolution - or the trustee should and give reasons why the trust wants to borrow and what for etc. No need to use a solicitor, just type it up yourself.

    You would need one loan agreement for the trust to borrow from you. The other money is coming from a bank I presume so the trust will have a loan agreement with them as well. You need one for the LOC as you are borrowing and then onlending to the trust.
     
  6. jellybean

    jellybean Member

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    Thanks Terryw for your reply.

    1. So I need a written loan agreement (a resolution) between myself and the trust (to be able to claim the interest). 2.Another loan agreement between the trust and the bank (banks own loan agreement). 3. Another resolution between myself and the trust (for the LOC onlending).
    So in total I will need 2 loan agreements (resolutions) that I can prepare and 1 loan agreement the bank prepares.

    It this right?

    Thanks so much for helping me get my head around this.
    Cheers.
     
  7. Terryw

    Terryw Well-Known Member

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    A resolution is different to a loan agreement. It is just a recording of a decision and the reasons behind it. eg. trustees have resolved to borrow $200,000 from John Smith for the purpose of investing in the purchase of a property at xxx.

    The loan agreement is the contract between the lender and the borrower. Lender agrees to lend XX $200,000 on the following terms, 7% pa, interest only, for a period of 30 years etc.

    You should really get some tax advice on this, especially when the trustee is a company.

    So you may need to record 2 resolutions or 3, borrowing from you, borrowing from bank and the property. 1 loan agreement between trustee and you and then the bank will have its own documents which the trustee will sign.
     
  8. jellybean

    jellybean Member

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    Thanks again Terryw,

    I do have an accountant but he's not very helpful, so I'm looking for a new one.

    I agree I do need tax/accountant advice but I'm happy to find out stuff myself too - so that I know when I'm getting correct advice.

    Cheers..
     
  9. Terryw

    Terryw Well-Known Member

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    Location:
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    Yes, keep on learning as much as you can. Knowledge is power!

    If looking for an accountant try one from the forum. There are a few here with good knowledge of trusts. You will find that most accountants and lawyers don't understand trusts at all so choose carefully.
     
  10. Joe Bloggs

    Joe Bloggs New Member

    Joined:
    31st Mar, 2012
    Posts:
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    Location:
    Melbourne, Vic
    Hi Jellybean
    You are not alone, i'm not an accountant or lawyer but was once a CFP (Certified Financial Planner).I am not licensed to give advise but may be able to help.
    Lets Take it step by step. What do you want to do? Do you wish to rearrange your properties or prepare for when your spouse DFRB Super becomes available, are you planning on moving, do you currently own the house you are living in?, the list is endless. Lets start,

    WHAT IS A TRUST?.... If you have $50 & give it to your best freind for safe keeping for a period of say 1 year whilst you go overseas, you have created a TRUST. End of story. Simple. She becomes the Trustee & you become the Donor & Beneficiary.
    WHAT IS A TRUSTEE?....It can be a person, a couple, a PTY LTD Company, another trust, a business partnership, almost any entity. Their prime job is to look after the assets of the trust under strict guidlines as laid down by ASIC & the Taxation department. The Trust must be registerred with ASIC & the ATO whom will issue an ABN. Tax returns must be lodged each year for the actvities carried on within the trust. Your accountant will organise all this until you are familiar with the docs.
    WHAT IS A BENEFICIARY?....is yourself, spouse/partner & issue if so desired. It can be another trust, company, or any organisation whom the trustee so picks. What you must realise is that a Family Discretionary Trust can have assets dispersed according to the Trustee/s wishes. It can be to one or more beneficiaries. With A unit Trust, each beneficiary is allocated 1 or more units & once again the trustee may direct disposal of assets to one or all the beneficial unit holders.
    There are numerouse types of trusts but I have only talked about the basics & tried to keep it very brief. Your accountant shall be able to advise depending upon your circumstances & future ambitions.
    All this info & much much more is available on the ASIC web site. Hope this has given you room for thought. JB
     
  11. Terryw

    Terryw Well-Known Member

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    JB

    Some good points, but a few inaccuracies too.

    A trustee can only be a person - ie an individual or a company. A trustee could possibly be the trustee of another trust also but you could not have a trust as a trustee as it is not a legal person.

    ASIC don't really regulate trusts either. ASIC regulate companies which are often trustees so they do play a role. Trusts are mainly regulated by Common law and the Trustee Acts of the various states. The tax department are only concerned with the tax aspects. Trusts are not registered with ASIC.

    A trustee cannot disperse the trust funds according to their wishes but must follow the trust deed and consider all potential beneficiaries when making distributions. If it is not permitted by the deed then they would be breaching their duties and could be held personally liable for any loss.