Asset Protection

WHETHER TO BUY MY NEXT PROPERTY THROUGH A TRUST OR JUST IN MY OWN NAME?

Our first bit of advice would be in order to select the best structure for you in relation to tax, asset protection and estate planning you should seek out an accountant who specializes in the needs of property investors. We work with a number of these firms and would be happy to point you in the right direction.

The Impact on Finance of Investing under Different Structures

We have assisted many clients to obtain finance to purchase properties under different types of structures and you are not wrong in saying that it is confusing as there are so many different structures to choose from.

Properties can be bought in:

  • Individual or joint names
  • Companies
  • Trusts with individual trustees
  • Trusts with company trustees
  • Hybrid or discretionary trusts; the list goes on and on.

Then once you have decided (or rather your accountant has decided) which structure to buy the property in, you have to decide what name to have the loan in as it’s not always the same.

  • For example, a number of our clients have been advised by their accountants to purchase properties in a company which is the trustee for a hybrid trust, and then have the loan taken out in the name of the unit holders.

From a finance point of view, the more complex the structure, the more selective we need to be in choosing the lenders who understand the structure and are prepared to lend accordingly.

  • A hybrid trust allows the most amount of flexibility. As beneficiaries to the trust, the properties are in effect also owned by them and they can continue to benefit from the growth in the properties in years to come without the huge costs involved if we had to transfer the properties over to them.
  • The disadvantage of purchasing in a trust is the extra paperwork involved and costs of setting up the trust as well as additional ongoing accounting fees that usually apply due to a more complex structure.
  • The Victorian Government made changes to the land tax calculations, which means that properties held in trusts are now charged more in land tax than properties held in individual names.
  • The other disadvantage is having a limited number of lenders to choose from when obtaining finance, and there are some lenders we know who are not willing to lend when the property is owned by a hybrid trust.

Also from a finance perspective, any beneficiaries named in a trust that are over the age of eighteen are normally required to be guarantors to the loan. Many accountants are now aware of this requirement and may be able to set up the trust without specifically naming other family members as beneficiaries but referring to them as beneficiaries in general.

We work closely with a select group of lenders who understand our clients special needs as property investors and will select the right lender that are able to provide loans in different structures. If necessary, we are also able to refer clients to accountants and solicitors who know they have a good understanding of property investment and are able to advise clients on the best structure for their property investment.

Deciding which structure in which to purchase a property is a very personal choice as everyone’s situation is different. It is worth a visit to a good property accountant to set up the structure correctly in the first place as any changes to the ownership later on can be costly.

However, I highly recommend that a good starting point would be to contact our office to arrange a complimentary consultation with one of our finance strategists. They will be able to recommend a finance strategy for you to move forward in building your property portfolio. Your understanding of and ability to obtain finance will make or break your investment strategy. So it’s a good place to start!

From there you can get the right advice from your own accountant, or an accountant recommended by our finance strategist, as to what structure to purchase your properties in. The finance can then be fine-tuned in line with advice you receive from the accountant.

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