Trust Structure For Investment Property Explained

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I’m here to talk today about trust structure and why you would do it around an investment property. So trusts are a separate legal entity by law, and so why would we be looking at trust structures is to isolate our assets, or even if it’s not investment property, any asset. But isolate our assets from being sued, for example, and therefore, being taken away from us. So that’s the reason why we would look at trusts.

I see other people, property people, really promote trust structures and try to argue that’s what the rich and famous do. If you were in an occupation or a job position or a business where there’s high risk of being sued and all your assets taken from you, well, then I would say, look at a trust. However, as it’s a separate entity, you need to look at what you’re putting into a trust as well, because you can’t claim in your own name the same losses as a trust, and it’s a very complicated system. You can add beneficiaries even to split income, but it’s very cumbersome. So the most investors that are employees, and they’re looking to negative gear to try and minimize their tax. I think going into a trust structure in the beginning might be over-complicating the structure. The one advantage of a trust, however, is you still get access to the capital gains discounting method, whereas if we put our asset into a company, companies don’t get access to the capital gains discounting method.

So that is one strong advantage of a trust over a company. And usually what we find is, subdivision investors might put their assets into a company, because they’re not going to get the discounting method anyway, whereas people holding an asset might put it into a trust. If we’re going to get a loan on a trust, it can be more difficult dealing with the banks to get a loan, and the loan-to-value ratio may be less, compared to what we can get in our own name. Some people may consider moving an asset. So you start with that asset in your own name, and then as you begin to own it and have less debt on it, you might migrate it into a trust structure, which you can do. We just need to be prepared that there will be a financial cost with stamp duty being charged on that transfer again.

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