Hi all, just wanted to find out if anyone is purchasing properties under a trust structure? My husband and I have bought our existing 4 IPs under joint names and have recently set up a trust with the intention of purchasing future investments under the trust. Our initial thoughts were that the trust structure wull provide us with good asset protection, the flexibility to distribute income for tax minimisation, and future estate planning. However, just as we're about to purchase the first property under the trust structure, we realised that we'd be up for a fairly sugnificant land tax liability which we would not be liable for if we were to continue purchasing as joint parties. We've also not yet received details of the fees and interest rates from the bank, our understanding is that it will also be at a higher rate than if borrowed as individuals. I already know that the LVR will be capped at 80% as a trust compared to 90% (without LMI) for us. When all things considered, it appears we may be premature in buying under a trust structure? And that perhaps we shouldn't do so until the cumulative land value is above the basic land tax threshold?
Hey Jenny,
I have purchased property in a personal name, trust (with me as the trustee) and within a trust with a corprate trustee.
In all three scenerios the loan limit was 95% LVR and the interest rate was not changed becuase it was within a trust.
I do not pay land tax at all because each structure (me, trust 1 and trust2) are each under the state (NSW) land tax limit even though combined I would be well above the threshold for land tax. I am not sure why you would be up for a fairly significant land tax under a trust but each state has its own rules. You would not have this under NSW or ACT (as I understand it). Land tax is charged against the entity and should be no different if purchased under your name or a trust name - but that is better to ask a qualified accountant within your state.
In terms of asset protection, you need to be careful in your trust structure. If you have individual trustees, ie you and your husband, then you would have very little if any asset protection. If the trust is sued and does not have enough money, then the plaintiff can sue the Trustees (ie you) and therefore you defeat the person of being in a trust. I learnt this (thankfully not the hard way) through my first trust and advice from Claire (also an apprentice).
The difference with a corprate trustee (ie a company that runs your trust) has protections in place to not be sued if the trust does not have enough funds to meet any legal litigation. There are rules etc, but generally speaking, if you purchase in a trust for asset protection, then you would need a corprate trustee. This is something else you would need to consider.
Can you have a corporate trustee put in charge if you commenced your trust as an individual. Absolutely, but it will cost you and time spent with your accountant can sort this out.
I recommend you read ahead on the course to the chapters relating to trusts and company's within the apprenticeship paperwork and use that as a basis to approach your accountant on what is best for your situation.
I also provided a lengthy post in the general discussion area recently on some of the advantages I found by having a trust and company combination and it helps my situation. Hopefully there is some info for you there as well.
Good luck.
Dean