Company or Trust with sole corporate trustee?

[Branca]

Hi PTers,

I need to decide very shortly about our investing entity and would appreciate any feedback. As I have mentioned in a former post, my husband and I are moving overseas next year but wish to maintain a property portfolio in NZ.

Option 1: purchase property in a company.

Option 2: Set up a family Trust with a corporate trustee, with us as company directors.

I have been advised by an investor friend that the Trust option has the advantage of allowing us to replicate the model should we wish to increase our lending, as it will help us to avoid the borrowing ceiling that most lenders impose. You would keep around 1 million worth of property in each trust.

Any advice about pros and cons of these two options would be appreciated, especially if there's something we need to be aware of concerning us being overseas.

[Dean@Massiveaction]

LOTS to consider if you are overseas, depends on which country etc. Definitely get some professional advice.
For example trusts give best asset protection but if moving to OZ then best option for tax is in your own name.
Every jurisdiction is different.
Don't make a decision based on any advice we give you here, go and sort it out properly. Getting it wrong could be real expensive.

[WGN ex-property manager]

LOTS to consider if you are overseas, depends on which country etc. Definitely get some professional advice.
For example trusts give best asset protection but if moving to OZ then best option for tax is in your own name.
Every jurisdiction is different.
Don't make a decision based on any advice we give you here, go and sort it out properly. Getting it wrong could be real expensive.

Seconded. Talk to (Good) professionals who have a track record of handling offshore property owners.

[Branca]

Had a meeting with my lawyer who supposedly does lots of property stuff, and is an investor himself...

He tried to talk me out of buying any property till next year because he thinks the market is going to go down!

On the matter of entities, he didn't give me any solid advice at all. He didn't think there were any particular issues with us being overseas in Guyana, with either a trust or a company. Obviously with a company we have the option of LAQC but this is of little benefit to us since we plan on being cash flow positive, plus will have no other NZ earnings tax to offset. Losses can be brought forward with either a trust or a company.

He claimed to be unfamiliar with the potential benefit of having a family trust with sole corporate trustee (I have been told that you can replicate the model once it holds a value of around 1 million, to avoid the borrowing ceiling imposed by lenders) and suggested I talk to his banker to see how bankers would treat it. He said trusts are 'fashionable at present'.

So now I am back at square one. Can anyone here verify the potential benefits of the family trust with corporate trustee vs a company to hold property? Is it true that this structure can help you to avoid the lending ceiling once your portfolio reaches a certain size?

Other than the issue of us being overseas, are there any other pros or cons to consider with the trust vs company decision?

Maybe I need to see a different lawyer.

[WGN ex-property manager]

Sounds like you asked for Structures and tax advice (of which you got none) and instead received some (in my opinion dubious) financial strategy advice instead.

Talk to Gilligan Rowe

http://www.gra.co.nz/

[Choc]

If considering a Trust I would suggest talking to an individual who is expert in Trusts (may not be your regular lawyer). Also you will need to consider the ramifications of the assocaited parties and their tax status; onshore and offshore.

Same applies to any structure. Tax treatment may alter based on your location.