Trusts – What are they and why would you need one?
Below is a simplified and easy to understand blog about trusts and the services that they serve. They can be as complex or as simple as you want them to be.
Trusts serve specific and particular purposes in the world of real estate investing.
- Tax Benefits – A trust is equipped with its own Tax File Number and msut do its own tax return
- Asset Protection – In a trust the trustee is the rightful owner of all assets. The ownership structure shields and investment property from any potential creditors against a beneficiary
- Profit Distribution – Trusts simplify the equitable distribution of income from investment properties, as trustees are legally bound to act in the best interests of the beneficiaries.
- Estate planning – Always a morbid conversation however trusts provide a straightforward mechanism for transferring property ownership on situations of illness, disability or death. The trust deed outlines procedures for such circumstances averting any potential legal complications.
Trusts and your serviceability
Something that most people dont know ant not many people talk about is the ability to leverage trusts to scale your portfolio. Trusts, as they are a separate entity to your person, and have their own TFN etc means that they can be excluded from your personal serviceability, hence when utilized correctly can be a pivotal way to get around serviceability caps.
Provided that the trust structure is positively geared, they can be completely excluded from your personal serviceability. This also means that the trust itself can scale when the property within the trust have appreciated in value.
One thing to note here is most trust structures cannot be utilized for personal tax incentives. As the trust is its own entity for tax purposes there isn’t much you can offset against it from a personal tax standpoint.