Do You Need A Trust?

10 July 2018 by Ross Barnett

Do You Need A Trust?

In my opinion, asset protection and Trusts are becoming more important for property investors.
 

  • Property investors are establishing more and more equity.  The more equity you have, the more you could potentially lose in a worst case scenario!
  • The risk of being liable for Health and Safety is higher, and likely to become higher in the future.
  • With ring fencing likely to be introduced in the near future (it seems certain to come in, we just don’t know the when or whether it will be implemented over a number of years), losses from a rental are likely to be treated the same as Trusts are currently treated.


It’s important to consider your possible risks and the assets you have at stake.
 
Some options that can be done:
 

  • Personal house into a Trust – likely to be no tax effect as long as true personal home, but make sure it is predominately the personal home if affected by the 2 or 5 year Brightline test!  This could protect your personal house at least, in a relatively easy manner.
  • LTC  -  change shareholding to a Trust – make sure you get expert advice as there can be catches, such as making building depreciation recoverable or triggering the Brightline test!
  • Sell rentals to a Trust – this is likely to incur more legal costs, trigger building depreciation recovery plus restart the Brightline test period.
    • -  If you are/were a trader or developer, or a builder, a sale can have more tax implications that need to be carefully checked.

 

Trustee options  

1.  Old fashioned – Mum, Dad and third independent person.  If using a lawyer or accountant, they are more likely to use a Trustee Company to act as the Trustee. 

2.  Slightly better, in my opinion – Mum, Dad and company specifically set up to be their trustee.  Might have accountant or lawyer as director and shareholder, but if wanted to change in the future, could just change director and shareholder, but titles and mortgages stay the same, so cheaper to change around.

3.  Variation on Point 2) – One corporate trustee.  This is one company acting as trustee.  Might have Mum and Dad as directors, and shares split in 3, with third independent person holding over 25% of shares.  This then gives some independence by the third person being required to approve all major transactions.



Kind regards
Ross Barnett

Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular person's objectives, financial situation or needs. Any opinions contained in it are held by the author as at the report date and are subject to change without notice.

Any changes in law or the facts through a misrepresentation or error or consequential developments may lead to a modification or change to all or part of this opinion. We do not accept a general responsibility to update this opinion for such changes. The opinion expressed herein is not binding on the Inland Revenue Department and we cannot guarantee that they will adopt the same opinion as us. We recommend you receive specific, expert advice before making any structural changes.

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