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Hi Everyone...New to site and to investing

Discussion in 'Introductions' started by lilly_star, 26th May, 2008.

  1. lilly_star

    lilly_star New Member

    26th May, 2008
    I just wanted to say hi and to get some advice on my current situation. My partner and I want to start investing but have some questions about trusts and shares.

    My partner and I have both read

    How to Legally Reduce Your Tax ... without losing any money! by Tony Melvin & Ed Chan.

    Their book appears incredibly credible and it states that the best time to set up asset protection is before you begin investing and that a trust is one of, if not the best way to do this as you have no ownership and yet you control everything.

    We want to begin investing this year, mainly in blue chip stocks over a diverse range of markets and a little in emerging markets such as green energy. My partner is the high income earner pulling 112000 a year while I make only just over 20,000. We are also looking at including a listed property trust into our portfolio as well.

    We want to set up a trust however we are unsure of what trust would be best for us? Discretionary/Unit/Hybrid? Does anyone have any ideas?
    We want the trustee to be one of us and not a company but we're not sure who should be the trustee? Does it matter if the high income earner is the trustee? Can a trustee be a beneficiary as well?

    As well does anyone know what kind of fees and other expenses a trust would incur?

    My partner thinks we should just dabbling in a couple thousand of investment without a trust to see how that goes but I am quite a cautious person and want to have everything set up properly before we start so as not to have to fork out a lot of money or get into trouble later on down the track.

    We are at odds with what to do because we want to invest now because we believe it is the best time to invest for what we want to invest in but we don't want to be left kicking ourselves later on down the track for not looking at trusts for asset protection.

    Any help would be greatly appreciated
  2. Nigel Ward

    Nigel Ward Team InvestEd

    10th Jun, 2005
    You're both right! How about that? :D

    Seriously, it's very positive that you're quite correctly thinking about "beginning with the end in mind" as Stephen Covey suggests.

    However, there's also something to be said for dipping your toe in the water a bit. I'm a big fan of trusts (in fact I think they're one of the greatest inventions of the common law system) but...apart from asset protection, what's another key reason for using a discretionary trust (to pick one type of trust which you could use)? Answer, flexibility in managing your tax liability.

    Your partner's marginal tax rate is 40% yours is 15% (ignoring medicare levy). Given there's no stamp duty on transfer of listed securities, it may be that you can (at least initially) get all the potential tax benefits from using a disretionary trust by you just investing solely in your name as the low income earner. As things develop you can (subject to some CGT - you hope) move shares into a trust as needed.

    Not suggesting that's a good long term approach (although you could legitimately decide it is) but perhaps a low cost one whilst you learn more about all the ins and outs of investing?

    Real estate - different story. The transaction costs due to transfer duty make it very worthwhile to consider a trust from day one...but again it's not without its downsides e.g. lower or non-existent land tax thresholds (depending which state you're talking about).

    Give it some thought...and when you're ready get good accounting and legal advice as to the investment vehicle best suited to your needs.

    It probably will involve a trust - but you're skipping some important preliminary analysis if you jump straight to that point and, as noted above, perhaps that's initially not the best approach if you're investing newbies.

    Good luck with it.

  3. lilly_star

    lilly_star New Member

    26th May, 2008
    It is so funny you mention Stephen Covey my partner and I are also reading and attempting to apply the 7 habits to our lives :)

    And who would've thought we could both be right... Win/Win situation good on us.

    Your advice has been very helpful so thanks.
  4. Young Gun

    Young Gun Guest

    Nigel will dissagree with me on this one. But I would say that a trust would be the very wrong way to go.

    unless your self employeed, trading as a sole trader or in a partnership asset protection is completely useless.

    There are better ways to do it and much cheaper too.

    my suggesting would be either:

    if it was just money in the bank your looking to invest. Have it in your name. lower MTR, less CGT on sale and if your husband runs a business in his name then the assets should be protected from the creditors should his business go pear shaped.

    if its gearing your looking at, then 100% in his name, higher MTR to offset, which means more tax saved.

    I'd only look at a trust to equalise tax on your incomes. other than that you getting married to your accountant for next 30 years for no reason.
  5. voigtstr

    voigtstr Well-Known Member

    24th Jan, 2007
    With property isnt land tax threshholds an issue if you use trusts? Until you reach the threshold in each state isnt it best to keep it in individual names and then use trusts after that?
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    You'd need to look at why you were using a trust in the first place. If asset protection was critical - then you would use a trust anyway, regardless of the land tax thresholds.
  7. Jacque

    Jacque Team InvestEd

    16th Jun, 2005
    Land tax, however, is something to be aware of, as it really can affect your bottom line. NSW is a real stinker, and a large deterrent to investors, as the current threshold is a measly $359K. Even purchasing in personal names it can hit hard and it only takes one house in a middle ring suburb to qualify for OSR annual bills.