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Hi - Hybrid Trust advice

Discussion in 'Introductions' started by Gwyneira, 4th May, 2008.

  1. Gwyneira

    Gwyneira New Member

    Joined:
    4th May, 2008
    Posts:
    3
    Location:
    Perth
    Hi everyone have just joined. Think this site is Fantastic. Just wanted some advice on stuctures.

    Briefly my situation I am married with three children, eldest is 12. My husband is on the 41.5% tax bracket I am on the 46.5% tax bracket. I Have about 2 mil worth of significantly negatively geared share and managed fund investments while my husband has a small amount of positily geared share investments 60K he was on a much lower tax bracket until recently. Interest cost on all the loans in my name is about 120,000 per year. We have recently finished paying off all non deductible debit and estimate that we can save about $90,000 per year, after investment loan payments. Though I will probably use a fair amount of this for more negative gearing soon.

    I intend to invest this 90K plus profits from future investment sales via a Discresionary Trust but am not sure if I should perhaps use a Hybrid trust for all future negatively geared investments in my name.

    Given the new tax office statements, have Hybrid trust losts there benefits?

    Also a I do not invest in direct property do you think it would be advisable still to use a corporate trustee as I do not belive asset protection will be an issue.

    Thanks

    Gwyn
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Hi G

    Welcome to InvestEd.

    You should have a chat to your accountant and lawyer but here's some food for thought:

    1) as you may be aware, in a discretionary trust any losses are trapped in the trust and cannot be distributed to the beneficiaries.

    2) There is a bit of uncertainty around hybrid trusts. A well drafted hybrid trust can operate just like a discretionary trust until units are issued.

    3) It's great you're thinking ahead. Once your kids are adults you can distribute income to them at adult tax rates via a discretionary trust - can save you a lot of tax (and provide them with income to pay for uni costs etc). Even whilst they're under 18 you can distribute up to about $1,300 per child so that's just under $4k you don't have to pay tax on if the income is generated within your trust. Check out the ATO website for more details Income of individuals under the age of 18

    4) Asset protection - whilst we shouldn't over-estimate the risks, nor should they be undersestimated. See for example http://www.invested.com.au/4/alert-new-reason-consider-asset-protection-10748/

    There's some further commentary here http://www.invested.com.au/77/dont-panic-real-story-asset-protection-4168/ . I think it's particularly insightful...but then I would say that wouldn't I.

    Best regards
    N
     
  3. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    can you bring your husbands positive geared assets into a DT and place a property in there so it should be roughly nuterally geared?

    Also for positive investments, have you thought about having just a corporate beneficary which means you can distribute to a company and not worry about withdrawing the profits until you retire (or are on a lower tax bracket)...

    Spare 90k per year... Must be a big spending spree your thinking about... Assuming Purchase prices of 400k and negative gearing amounts of 200 per week your looking at about $3.5 mill in property you can support...

    When you start talking large numbers like that (and estimating you probably already have 5 400k propertys) do you really want the maintance of another 8 propertys? Maybe is small commercial buildings a potential though for you??? (to reduce the admin side of things)
     
  4. Gwyneira

    Gwyneira New Member

    Joined:
    4th May, 2008
    Posts:
    3
    Location:
    Perth
    Thanks for your suggestions.

    I do not have any direct property investments so maitenance is not an issue, but was intending on putting my husbands positively geared investments into the DT.

    My main concern is should I continue to purchase negativly geared investment in my name and when I sell them move the profits into the DT or would I be better off to use a HT for the negatively geared ones.

    I have thought about using a corporate beneficary but what would I do with the funds once in the company. Yes it would save some income tax but I think over the long term without the 50% CGT discount I would probably be worse off as I tend to mostly invest in growth shares rather then Income. It is also about 30 years until retirement so I would not expect to be on a lower tax bracket for quite some time.

    Thanks
     
  5. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    With the limited background info except for you being in perth. Are both your incomes attached to the mining boom? Ie if this dies down will your incomes reduce accordingly.

    Are you comfortable enough that your income will still always support the 90k buffer?

    Yes HDTs are good for your sort of thing (Buy with units issued to you, then in 10 years time when its positive pull the units and turn it into a DT. However you will have to pay CGT on the sale. If you put them in your own name you will have cgt and stamp duty, hence the HDT are the winning option

    With regards to property being in DT's you will need to accumulate 5-7years of loses in the trust until you can use them (unless you ahve a positive DT used for shares distributing to it).

    If you say u dont have direct ownership, is it in LTPs or UPTs? If so a DT would be benefitical here with a corp benficary as any distributions made by these will only be taxed at 30%. You can then lend the remainding distribution (70% of the amount) back to the trust to purchase more units so u will still get the cgt discount...
     
  6. Gwyneira

    Gwyneira New Member

    Joined:
    4th May, 2008
    Posts:
    3
    Location:
    Perth
    Our incomes are not directly related to the mining boom so that is not much of a factor.

    I hold very little property about $50,000 LPT's the remainder is direct shares, Share Funds and Stuctured Share Investments. As most shares I tend to keep for a year or two not for an extended period I am unsure as to where the stamp duty comes in and weather a HT is feasable for a portolio that changes on a relatively regular basis. It seems to me this kind of this is mostly suitable for buy hold investments or large individual investments over 5or more years

    The corp benficary lending the funds back to the trust is an excellent Idea. My goodness I realy am going to have to pay a fortune for accounting fees.
    -Corp Trustee
    -Corp benficary
    -DT
    and HT

    Thanks
     
  7. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    stamp duty wouldnt be an issue, it would only be CGT, as you say you sell every 2 years or so then if you keep your current pattern but sell in your name and buy in the DT, then theres not really a huge amount of difference as youll be encuring the cgt bill anyway...

    yes accounting fees might be expensive, but as you'd get half back in tax, and they will be saving you more tax i wouldnt be worried about the cost. Just think of it as a % of your assets...

    You pay a fund manager 2% to look after your assets each year, why not pay someone to structure it properly...

    if you keep your shares for under a year you dont get the cgt discount anyway, to save on tax you can distribute these to your corp benificary and only pay 30% tax on them rather than 46.5% in your name...