Buying Property Through Trust Structures

October 22, 2015

Trusts can be an extremely useful method of holding assets like investment properties, offering an array of benefits.

They allow property owners to potentially lower tax bills, by distributing any income earned from investment properties among family members or unit holders.

In terms of estate planning, setting up a trust allows you to pass on your assets to family members without worrying about estate disputes.

Trusts also provide protection for your assets, as they are not impacted by personal events and legal troubles in your own name.

Yet there are a few factors to take into consideration before determining whether buying property through a trust structure is right for you.

Discretionary trusts

One of the most common types of trusts used to purchase property is a discretionary or family trust.

In this type of situation, the trustee can determine which beneficiaries will benefit from the trust funds.

When these beneficiaries are related, it’s known as a family trust. The primary benefit of this type of trust structure is that it offers a high level of flexibility with your tax planning.

The trustee can distribute their capital to beneficiaries with discretion.

Asset protection is also high with this type of trust structure, but it’s important to structure them correctly to safeguard the investment.

Self-managed super funds

Another popular type of trust structure is a self-managed super fund, or SMSF.

These are established by individuals who want to manage their own retirement funds. There are a few things to keep in mind with a SMSF. A law passed in 2007 allows super funds to borrow funds in order to increase investments.

This can provide an ideal way to fund high quality investments and safeguard your assets for the future, when done correctly.

It’s important to get the appropriate legal and financial advice if you’re thinking about borrowing in your SMSF, because attaching a loan to the fund could impact property renovations.

It’s also best to shop around and compare different loan options, as some lenders will include complicated clauses in their agreements or will wish to hold the property’s title.

Hybrid and unit trusts

Further options include hybrid and unit trusts, which combine the different types of trusts mentioned above or allow the trustee to distribute funds to unit holders.

Most lenders will not lend to a hybrid or unit trust, however.

This is because unit holders could potentially sell their units to a third party, making the loan riskier for the lender.

Setting up a trust

Whether you choose to set up a discretionary trust or SMSF, you’ll probably wish to use the services of an accountant and/or solicitor.

Standard trusts can often be set up online, but it’s helpful to pay a professional to ensure that all paperwork is completed correctly.

A trust that is not set up in the correct way can create more liabilities rather than protecting your assets.

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