Set up Trust to Do Investments and Where to Start

Hi guys I am sure some of you know this as a second nature but it's difficult for a total newbie like me.

Basically I want to set up a family trust with my partner to engage in investment such as etfs and lic. I might even do fx trading and other investment of course it depends on how much I have. Deposit rate is at record low so other investment is probably better than bank deposit.

What I want to know is how can I set up a trust (I understand I need to speak to a lawyer to come up with a legally binding trust deed first) and then once the trust is set up. I need to create a bank account for the trust and then I can start to invest.

My question is how difficult is it to find a good solicitor to do the trust deed with reasonable fees and how much does the trust creation cost with stamp duty and government fees.

Is there any other fees I should be aware before going ahead? Any potential risk I should be aware and look out?

Is the a good article I can read on this? Further down to the line I want to set up company to engage with the trust etc. This sounds complicated but I wish to find out what I can and cannot do before going ahead. All advices and critics are welcome.

Comments

  • +10

    Here's the very short starting point.

    You need to speak with both a lawyer and accountant to determine if this is appropriate for you. A lot of people have ideas about family trusts for all sorts of reasons, but the reasons to have one have been diminishing over the years.

    A trust is going to cost you in legal fees to establish and in accountancy fees ongoing as the trust will then need to file its own tax returns separate from your own.

    The first thing you need to take advice on is whether or not a family trust is for you and whether you will get any benefits from it (or it just becomes another cost and administrative burden). Any half way decent lawyer and accountant can get these things set up for you … it's whether it is right for you that is the more important question at this stage.

    • Yes I think it's useful for me and my partner at this stage. So I am keen to get started. Just want to understand all the small details involved so I am looking for advices here. There are some savvy investors on ozb and I could learn a few valuable lesson from them.

      • +6

        Well, if you're set and ready to go, speak to a local solicitor and accountant (engage them both in what you are doing) who you've received recommendations related to the issue at hand. I've found local Facebook (or similar) community groups can be good as a source of recommendations.

        The solicitor will establish the trust and all the other particulars for you. They will supply you with all the necessary paperwork including the establishment of the trust (specifically the trust deed), appoint trustees (you'll probably be advised to set up a separate trustee company for this purpose that you and/or relevant others will be directors of), necessary registration certificates, etc., etc.

        From that point, you have a trust that is now a legal entity separate from you that can own assets in its own name. With the necessary paperwork you can then get the trust a bank account, share trading account, etc., etc. as required to fulfill your intentions.

        The set up of the trust is not a small undertaking. I set one up years ago and back then I seem to recall the all up cost was in the realm of $2-3k including solicitor time, government charges, etc.

        Based on my current company tax returns, you're likely looking in the realm of $2k per year to do all the necessary tax work (my company accounts are about $1.5k a year). This is largely about creating and filing all the necessary statements, returns, etc.

        These are ballpark figures … it's been some time since I've dealt in trusts, but should give you some idea of where to start, what you should expect and likely costs along the way.

      • +1

        The money you're paying your lawyer or accountant is to educate you and tell you whether a trust will benefit your specific financial circumstances and your desired outcome. Not just the actual paperwork involved in setting up a trust. As Seraphin7 said, talk to the professionals.

  • Better off setting up a smsf. 15% tax rate and zero tax in retirement

    • +4

      That's implying the government will not make any changes to superannuation laws or keep increasing the retirement age…

      • I think you mean preservation age which is a lower than the Aged Pension age.

        • Yes, my bad, it is preservation age. So that implies that Australian economy will be spic & span stable until you reach 55-60 years, which for people who are now 20-25 years old means that they expect no economy crashes for at least 35 years!
          Crazy to think like that, knowing we are already starting to go into recession (or atleast showing the signs of it).

          • @Blue Cat: Labor wants to tax family trusts at 30% rate so anyway you go can be a risk of future governments tinkering with it

  • I understand why you might want to do this. But I would have thought that physical assets such as property etc. would be best suited to a trust.

    The SMSF idea noted by chumlee could be a better option and you could just to one for your partner and one for yourself.

    • Thanks for the idea. I will look into SMSF. Just wondering if I can set one up if I already have a super fund for my day job?

      • Yes you can.

        Look into esuperfund. Low cost and easy

        See if your employer can pay into a smsf, then you can transfer your current super to your smsf

        • Thanks and I'll check esuperfund out. Is it possible to keep 2 super funds (one for my day job and one for SMSF)? I understand this means more costs to maintain.

          • @arctan: Yes you can. Some prefer it as they keep the insurance in the employer super.

            I only have my smsf and have my own life & TPD insurance within my smsf

  • From what i know:

    • initial set up cost is a few grands
    • you will also need to set up a company as trustee for the family trust
    • only self-employed or partners from accounting/law firms who can have their "income" paid into trust will benefit (i.e. if you're getting standard PAYG income, there's not much benefits from trading under FT rather than your own name
    • trading as a trust will incur a higher fee in maintenance (brokerage fee, accounting fees, etc)

    i can be wrong though, will be interested to know more too.

    • You don’t need a corporate trustee at all. Person(s) can be trustee. Corporate trustee just makes it more plain that it’s trust property by plainly splitting legal (as opposed to beneficial) ownership and also gives you a corporate beneficiary taxed at 30% to receive distributions.

      PAYG persons with assets to invest can benefit from income splitting from the yield on investment by holding in trust. Also asset protection strategies.

      • Person(s) can be trustee.

        Highly do not recommend this.

  • +1

    Set up Trust to Do Investments

    Why do you want to do this?

    Asset protection, income splitting vs set up and admin costs unless you have sufficient scale.

    Also consider a corporate trustee so need to also set up a non-trading company.

    family trust

    Assuming you mean discretionary trust?

    • i wondered the same?

      It seems like using a sledgehammer to crack a walnut

    • OP has not mentioned any benefit that a trust would bring them, presumably because they heard “trusts pay less tax” or something like that.
      They will likely be in for a rude shock after paying the costs…

      Reasons to have a trust in 2019:
      - you wish to protect assets
      - you have income producing assets and trusted beneficiaries on low tax rates

      This isn’t investing, it’s about handling things after you have accumulated the investments.

      • +1

        handling things after you have accumulated the investments

        It's sensible to ask the questions and set things up before you have accumulated the assets, provided you're likely to get there, and are not just some average Joe who heard some positive things about family trusts.

        It's too late once you've accumulated the assets - you'll incur CGT and transaction costs to transfer assets into a trust, although there are work arounds. Also, you might not have any asset protection if you've only recently transferred the assets.

        • This. Plan ahead for inevitable CGT events later.

          • @kipps: I think you could accumulate for 3-5 years before these things would be an issue.

  • +1

    Have you considered a secret illegal account with the Cayman Islands offshore holding corporation?

  • Have a read of Scott Papes updated book The Barefoot Investor from memory there is a chapter on this.

  • Don’t uses forbesholland

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