What are the advantages of having a Trust?

Question from Anon updated on 23rd June 2009:

Our expert Mark Withers responded:

I'm surprised by this, in my experience a set of accounts for a simple family trust that owns one rental property would normally cost less that $1000. If your bookkeeping is a shambles, perhaps yes, but if you are doing your bit to keep things in good order $1800 would seem alot.

Lawyers also charge a few hundred dollars for each annual gifting. The two main advantages of a trust are asset protection and the ability to either cap tax on the trusts income at 33% or potentially take advantage of ditributing trust income to beneficiaries who may be on lower tax rates. Be careful though, if you allocate a beneficiary income you must be prepared to actually give them the money!

If your rental property is only just covering the mortgage payments though I suspect you will turn in a loss after other holding costs and depreciation. If you own the property personally this loss is claimable in your tax return but if you incur the loss in the trust the trust can't distribute it to you. The loss accumulates year on year in the trust and can only be offset against future profits. Always remember too that a depreciation recovery will usually be triggered when you transfer a rental property to a trust.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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