Placing investment property into a trust

[mals69]

Just finished reading a New Zealand authors book on Family trusts and "miffed" how it ended up being a best seller. Lacked practicality's, glad borrowed from library.

How does the bank fit into the equation with the transfer of investment property into the trust ? Do loan documents have to be re-drawn in the name of the trust.

With the gifting process I worked out with current property values it will take 36 years to have everything transferred, good protection for future generations but not that great for the actual person who has grafted to accumulate the wealth.

[Keithw]

Trusts are not supposed to be for the benefit of the grafter, they are for the benefit of the beneficiaries.

When I checked with the bank about loans, they said it depends on who is liable for or in control of the asset after the transfer to the trust, and whether your personal guarantees flow through to what are now the trust assets.
If the bank can still maintain security over the property, they don't seem to need to rewrite loan docs.

[[email protected]]

They normally just take additional security, re-doc'ing not required.
There are solutions to gifting time, depending on your requirements.

[Gatekeeper]

There are solutions to gifting time, depending on your requirements.

Such as?
I've seem a few huge mistakes in this regard. Expensive and had to be reversed, so interested to know.

[mals69]

Trusts are not supposed to be for the benefit of the grafter, they are for the benefit of the beneficiaries.

Smoke-screen comes to mind

Cheers all so far

Interesting

[[email protected]]

Increase the amount of gifting and pay some tax on it for one.

[essence]

You will need a NEW valuation completed.
On a specific date (you choose) you ascertain three things - the value of the property (see valuation above), the amount of debt outstanding and the amount of equity the shareholders own.

You need to sell your rental to the Trust at an agreed price between the shareholders (yourselves) and the Trustees of the Trust (again, possibly yourselves). Both parties much sign an Agreement for Sale and Purchase - you can get these from a lawyer if you talk really nicely to the girl at reception.

Example property's new valuation is $340K, mortgage is $120K, equity $260K. You need to advise the Bank where the mortgage is held of the change of ownership. The Bank will want new mortgage documentation drawn up ($120K) in the name of the Trust. Banks will want as much security as they can get, so they will get the trustees to sign a guarantee form. Some Banks do, some don't. They will also want your left kidney and your right toe if they could get their hands on it (Okay, so I don't have a good opinion of Banks!)

Insurance and local Council will need to be advised immediately as well. Any future contractors ie lawnmowing etc will also need to be advised eventually.

A Deed of Acknowledgement of Debt needs to created, so that the shareholders equity ($260K) is "sold" to the Trust. This needs to be signed by the shareholders who are donating the debt (Donors) and the Trustees who are accepting the debt (Donees).

If the company has a shareholding of 100 shares, and Mr X portion is 99 shares and Mrs X's portion is 1 share, then the value of the shares is $2,600 EACH. $260,000 divided by 100 = $2,600 per share. Mr X's donation to the Trust is $257,400 and Mrs X's portion is $2,600.

The limit per year for gifting without paying tax is $27,000. In the first year Mr X creates a Deed of Forgiveness of Debt for the amount of $27,000, thereby reducing the amount that the Trust owes him to $230,400 and Mrs X does the same, but her one and only "forgiveness" to the Trust is $2,600. Her gifting for this shareholding is therefore finished. Mr X will continue to "forgive" the Trust $27,000 PER YEAR, until the debt is completely forgiven.

As you can see, with the shareholding split 99/1, it will take Mr X a lot longer to forgive the debt than Mrs X. What can be done just prior to this, is equalizing the shareholding to 50/50. This is easily done through minutes in the company's book and also on the companies office website.

Disclaimer - I am not an accountant, so my views are for education only. I STRONGLY recommend you go to an accountant to get any work done correctly. I may be completely and utterly wrong and then you'd really be up S*** Creek without a paddle!!!

[princess]

Hi Mals69

My parents are in the process of doing just this - however their arrangement is a little more complex, transferring property from a ltd company, a partnership and an estate, INTO a new trust structure.

They are working with John Rowe at GRA in Auckland, and have been really pleased with progress to date.

I suspect many on this site are using such experts to get this structure set up correctly.

Good luck!

[mals69]

Pay some tax on it for one.

Pooomba please do not swear

essence you could have saved me some overdue library fees if I'd come in here earlier

Council rating value or if the government body still rating can be used if less than six months old, chop many years of gifting off in my case.

[mals69]

Cheers princess Yes need a professional so the trust is set up correctly so it can not be AttACKED in the future from all kinds of angles.
Lawyer, Public Trust etc.

[essence]

Valuation

Hi Mals69

You are only getting the valuation for an inter-entity sale, so when you talk to the valuer, explain that you want the LOWEST valuation he can give. This will mean you have less years of gifting involved.

You will also need to have a "Sliding Value" clause within the Agreement for Sale & Purchase, so that IF the IRD does query your value, you can adjust the price.

Pooomba (aka Dean @ Massive Action) may have some clauses available on his Massive Action website for the sliding value clause.

[[email protected]]

I don't believe that will work Essence. IRD's rule means they cannot challenge a valuation providing you have one in writing etc., so the solution is simply to get the lowest "genuine" valuation you can. Alternatively in this market get the best cash offer for the property you can and/or a written appraisal form a reputable agent and keep them on file.

Sliding scale clause would make IRD think you were trying to diddle them.

[essence]

I don't believe that will work Essence. IRD's rule means they cannot challenge a valuation providing you have one in writing etc., so the solution is simply to get the lowest "genuine" valuation you can.

Always good to have another viewpoint.

Sliding scale clause would make IRD think you were trying to diddle them.

The last thing one needs to do, is to get the IRD to think!!!

Seriously - thanks Dean. I was just being cautious but in being cautious, it may enable the IRD to view what you are doing suspiciously.

[mals69]

Cheers again

The book I read was a 2008 revised edition and it stated as I previously mentioned that council or government rating is accepted by the IRD if less than 6 months old, if timing right would be the one to go for - for me as each property is about $55000 lower than approx actual value. Cheaper rates for decades "just quietly"