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Do I need to put my home into a trust?

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  • Do I need to put my home into a trust?

    Hi,

    I am in the process of refinancing. My accountant recommended putting home into a trust but my lawyer says it's not worth it as both my wife and I are salaried workers.

    We are close to buying our first investment property. We plan to set up an LTC for this.

    What are your thoughts? If you all recommend setting up a trust is it better to do it now while we are refinancing or does it not make any difference cost wise if we do it down the track?

    Cheers
    Scott

  • #2
    Trusts are about asset protection NOT tax. You need to get asset protection advice which is influenced by your general risk profile and the nature of your life. for example if you own a business that has a risk of being sued etc. then asset protection is arguably more important than if you are a salaried worker unlikely to do anything risky.
    The generic answer is always protect your assets as much as you can but whether you need to is specific situation dependent.

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    • #3
      My personal take is having a trust right now is not really that important for you, as you can't hide your assets from your wife nor the bank, so very little benefit atm.

      Focus more on buying the investment properties.

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      • #4
        Hi Scott,

        Why did your accountant recommend a Trust? What were his/her reasons that you should have one?

        Some possible reasons are

        1) Asset protection. So if you get sued, then your house is separate to you, and safe from creditors. From your post it sounds like you are lower risk but perhaps your accountant has other information and knows of another risk area for you?

        2) If you have considerable wealth, maybe over $1 million in net wealth, that you choose to protect your home in a Trust, even through you have a lower risk profile

        3) If buying rentals that generate large profit, or have other investments generating large profit, then a Trust is a very good entity to receive a profit as can distribute to lower earnings beneficiaries.

        4) Can help protect your children. ie rather than leaving them inheritance you keep it in the Trust so that their partners can't touch it

        5) Some believe in using Trusts to avoid rest home fees, but I believe over the next few years that surely these wills will change to be more in line with new working for families, student allowances and other laws.

        Ross
        Book a free chat here
        Ross Barnett - Property Accountant

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        • #5
          Read Tax Structures 101 by Matthew Gilligan - it is up to date. Also background reading on trusts generally - lots of cheap books on Trademe which may not be 100% up to date but will still help you decide whether you need a trust or not, or at least what questions to ask your advisers.

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          • #6
            My personal take is having a trust right now is not really that important for you, as you can't hide your assets from your wife nor the bank, so very little benefit atm.
            None of that is correct Gary.

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            • #7
              Originally posted by Damap View Post
              None of that is correct Gary.
              If he wants to pay thousands at the start to setup and maintain a trust, then go ahead.

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              • #8
                Thanks for the replies.

                The only reason that I thought I should use a trust, is to stop the lending bank for the investment, being able to get at my house if I default, but it seems this is not possible in any case??
                The accountant is a well respected property specialist but he didn't ask me a lot of questions - more like just wanted to set me up with the template they use for everybody..
                Would rather save the money if it's not required at this stage.

                Cheers

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                • #9
                  Originally posted by ykrahs View Post
                  The only reason that I thought I should use a trust, is to stop the lending bank for the investment, being able to get at my house if I default, but it seems this is not possible in any case??
                  Talk to a trust specialist lawyer.

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                  • #10
                    Originally posted by ykrahs View Post
                    The only reason that I thought I should use a trust, is to stop the lending bank for the investment, being able to get at my house if I default,
                    So you want to borrow money, and then if you can't meet the repayments you want to keep other assets instead of taking personal responsibility and repaying your debt you owe ?
                    I hope after spending lots of money setting them all up, that your cunning plans fail.
                    Last edited by speights boy; 10-06-2015, 06:44 PM.

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                    • #11
                      Originally posted by speights boy View Post
                      So you want to borrow money, and then if you can't meet the repayments you want to keep other assets instead of taking personal responsibility and repaying your debt you owe ?
                      I hope that after spending lots of money setting them all up your cunning plans fail.

                      Haha - yeah not exactly what I meant obviously.

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                      • #12
                        Originally posted by ykrahs View Post
                        The only reason that I thought I should use a trust, is to stop the lending bank for the investment, being able to get at my house if I default, but it seems this is not possible in any case??
                        Originally posted by ykrahs View Post
                        Haha - yeah not exactly what I meant obviously.
                        Oh; I see.
                        What did you mean ?

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                        • #13
                          Originally posted by speights boy View Post
                          Oh; I see.
                          What did you mean ?

                          I meant, that is not my intention - simply an example the accountant gave as being a reason to set up a trust.

                          ps. Lion Red is better than Speights

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                          • #14
                            I can't see much difference in waiting to set the trust up if you are not sure about it. The ongoing compliance for a trust can cost a fair bit annually and you always need to make sure your accountant is up with any changes. I personally feel trusts are overused and over complicate things.
                            Having said that, I have one, but there are several reasons for that - being single & out of the country are the main ones.

                            The only difference it would make to do it during refinancing is that the names on the title are likely to be different, ie if you & your partner are on the title now and your trust has 3 trustees. You can just alter that at a later refinancing date if you go ahead with the trust.

                            Why not meet your accountant and ask the reasons? I would normally take a trusted accountants view over a lawyers in this type of thing. Don't spend the money unless you are convinced! Much easier to do later than undo.
                            Last edited by Tan; 10-06-2015, 08:26 PM.

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                            • #15
                              Trust doesn't protect you from property claims - courts are breaking them open every day. Only an up to date contracting out agreement can help.

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