Trust Accounts - are they worth it?

[Rastan]

Hi Everyone,

I am selling a property to fund a year off to study (learning to trade [which this forum is a great help] and doing a masters so I have something concrete to show for the year) and am considering whether or not putting the money in a Trust (or company structure/whatever) would be the best way forward?

I thought there would/could be these advantages:
1. I can trade and put my profits (hopefully) back into the trust and draw a next to nothing wage and therfore could receive the equivalent to Austudy (I know I should be able to make that trading anyways - but a smart person isn't going to say no to 'free' money). i.e. If I keep the 100K I will clear from the house in my name I would fail the assets test - if I put it in a trust/company setup it might get around it?

2. (I know this sounds bad but) Protection from partner splitting up and getting hands on my lifes savings. I dont want to go into specifics as I dont think this is going to be an issue for me, but I'm smart enough to look around see a lot of people that _had_ that idea too, so it doesn't hurt to be prepared. But I always thought they had changed things such that if you were to split up you need a swiss bank account or something as they get it out of you anyways (i.e. trust funds aren't the security that they used to be).

This is all I know so far. I remember when I bought my 2nd property people mentioning it to me and it being too late as the property was already in my name (and hence I would have to 'sell' it to the trust and incur CGT). Since I am freeing up this capital I was wondering if it would be smart this time to get it out of my name and into some form of structure?

All opinions and experience welcome

--
P.S. - If you know anyone looking for a great investment house - 7klm from the beach, 500sqm, 15yo house with the same great tenant the past 5 years (a mature lady who has just been wonderful) - feel free to point them here - http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104818335&f=0&p=10&t=res&ty=&fmt=&header=&cc=&c=4090622&s=qld&snf=rbs&tm=1208309577

 

[prawn_86]

Rastan,

My father looked into setting up a trust but found that anyone's whose name is part of the trust is not eligible to recieve Austudy.

This is also true for a good friend of mine, who cannot recieve it due to him being part of a family trust.

I would double check this first before you go ahead with it.

Companies im not sure about...

 

[Rastan]

Thanks Prawn,

To tell you the truth the Austudy part isnt a big deal as I am planning on paying my own way anyways, and I think its only something around 200-250 a week, which although it would almost pay the rent, at the end of the day if I am learning to trade I shouldn't be worrying about 200/w. I suppose its because I know what stage of learning I am (still very early), I dont expect to be able to turn a semi-regular (if somewhat small) profit for about a year, which is the same time that I would be studying, so if it was possible then I would take it, but if not its not going to stop me (just means a larger investment into myself over the next year).

I am also after any good benefits that I dont know about (yet), how much they are, how to set them up (a solicitor I guess) - any and all general info is good.

Thanks for the heads up on austudy though - it looks like I wont be able to get it (which is fair enough) - so thats one advantage off the list...

 

[reece55]

Rastan,

My father looked into setting up a trust but found that anyone's whose name is part of the trust is not eligible to recieve Austudy.

This is also true for a good friend of mine, who cannot recieve it due to him being part of a family trust.

I would double check this first before you go ahead with it.

Companies im not sure about...

There is a way around it, the potential beneficiary needs to sign in letter format that they will elect to forgo any distribution. Centrelink accept this, I have to do it for a few clients every year.

If your trading, I find it easier to have an interposed structure of a company as the trading arm, with the shares owned by the family trust. Then you still have the benefit of streaming the profits, as well as the option of retaining the profits.

But trust structures are around for a couple of reasons - income splitting and capital gains splitting. This obviously can be applied to share investing/trading.

Cheers

 

[Whiskers]

If I keep the 100K I will clear from the house in my name I would fail the assets test - if I put it in a trust/company setup it might get around it?

So long as you control the company or trust it won't make any difference to holding in your own name. For that strategy to work you would have relinquish control over to someone that you trust... but if it is not done properly you may still be deemed to own/control the asset.

One way you could reduce your net assets is to take on some debt to offset against your 100k.

 

[reece55]

So long as you control the company or trust it won't make any difference to holding in your own name. For that strategy to work you would have relinquish control over to someone that you trust... but if it is not done properly you may still be deemed to own/control the asset.

One way you could reduce your net assets is to take on some debt to offset against your 100k.

Wiskers is right, for the purposes of the asset test you can still be deemed own the capital. If it were that easy, everyone would be doing it.

To avoid controlling a trust, ensure you are not the appointor, trustee or the specified individual for the purposes of family trust elections.

The problem will be getting your capital in without it being deemed to be yours. Have a look at gifting money to a relative - I think you can gift about 10K a year without asset test implications from memory....

Cheers

 

[Rastan]

Yes that makes sense - and to tell you the truth I dont mind - I never expected to get Austudy, but if it were an added benefit I wouldnt say no either. It was more that since a large portion of my entire lifes savings is getting freed up should I consider the trust dealy?

As I mentioned previously, people had mentioned it to me after I had bought a property but since it was already in my name it was harder to do. I am wondering that if this time around before I go allocating the money and just doing it all in my own name - are there advantages in getting a structure of some sort setup for it all. If the setup costs are under 5K and there is good advantage (most likely good long term advantages - maybe they will get harder and more exp to setup) then I should consider it.

I just dont want to look for/get information about this after its too late and everything is in my name again... Also I may go OS to london in a year or 2 (hey I might even do a 'Coffey'!!! [you have to aim high!]) so there may or may not be advantages for that too.

I dont mind putting it all in my name I suppose - it does hurt a bit to think that I can live with a girl for 6 months and she is entitled to half of everything I have built up over the past 15 years...

 

[freddy2]

1) You are not going to make money trading unless you're lucky. Study after study has shown that after transaction costs and taxes it is almost impossible to make money from short-term trading. Or do you instead believe the self-proclaimed experts here that have no evidence (eg tax returns) that they make money from trading in the long-term. I also question why someone with substantial assets and ability to earn an income (outside of trading) should be receiving government assistance such as Austudy.

2) Legally and morally your wife/de facto partner deserves half your assets accumulated during the realitionship in a divorce. If you had substantial assets before meeting your partner you should have signed a pre-nuptial agreement.

 

[Rastan]

1. I am not going to make money trading if I dont try (my hardest). I believe I have realistic goals and understand the hard work and discipline required to get where I want to go. I plan to value invest (buy and hold) most of my capital, but at the same time I am going to leave myself an egg/investment to learn to trade with. If it doesn't work out then its a life lesson I will take on board. I will be completing a masters of applied finance at the same time, so its all good. As for Austudy, I completely agree and I don't plan to get it, but all successful people got there by playing the game smart and if I can get some tax back in the way of Austudy then I will - I very much doubt I would be an expenditure on the Australian government by the the time I finish paying tax...

2. The de facto thing, like I mentioned, it shouldn't be an issue, it's just I always thought pre-nuptuals weren't worth the paper they were written on and i doubt I would get one anyways, if the trust could do it for me, it would be the perfect solution for all involved

 

[Whiskers]

I also question why someone with substantial assets and ability to earn an income (outside of trading) should be receiving government assistance such as Austudy.

Fair enough point Freddy... BUT, if only you knew how much gov grants, assistance of any description the top end of town can and does get. If you can organise your affairs legally to do it go for it.

Where there's a will there is often a way, Rastan.

I presume you own another house that you live in.

If I recall correctly a good chunk of owner occupied houses don't count towards the assets test. Check that one out.

You may be able to pay for your uni fees, expenses in advance to reduce your assets a bit.

Another option could be to make a contribution to your superannuation of just enough to get you under the asset test and collect a bit of co-contribution. Since you want to learn to trade you could put it into your existing super or a new Superannuation Savings Account which you can roll into a self managed fund later. You will loose the ability to access that cash for personal use again, but it would be worth doing the sums to see if it's worth it.

If your worried about relationship split-up's, there's always pre-nups. Also you can live in the same house with someone without being in a defacto relationship, eg shared tennancy.

You would need to be in a relationship for a bit more than six months for a partner to have any significant claim to more than they went into the relationship with... unless you produce a baby.

Some more to think about.

 

[Julia]

Whiskers, you've beaten me to the Super suggestion. Rastan, as Super is quarantined from Centrelink assessment this would allow you to access Austudy (or any other appropriate Centrelink benefit for that matter.)