Asset protection

Asset Protection - Should I buy my next property through a trust or under my name?

If you are considering purchasing your next investment property under a trust rather than personal name as a strategic decision, our first bit of advice would be to seek out an accountant who specializes in the needs of property investors, in order to select the best structure for you in relation to tax, asset protection and estate planning.

A property can be bought in

Individual or joint names
Companies
Trusts with individual trustees
Trusts with company trustees

There are pros and cons to each approach. Here are some key factors to consider:

Benefits of using a trust:

Liability protection - trusts separate your investment assets from personal assets.

Tax flexibility - distributions can be directed to beneficiaries in lower tax brackets.

Future estate planning - transferring assets to beneficiaries avoids probate fees.

Ongoing control - a trustee can retain control beyond your lifetime.

Downsides of using a trust:

Upfront costs - establishing a trust costs around $800-$2,000.

Ongoing admin - annual tax returns and admin for the trust entity.

Loan eligibility - some lenders limit amounts for trusts so leverage may be lower.

Loan costs - interest rates can be higher for trust loans.

Loss of owner benefits - like the main residence exemption from capital gains tax.

A trust is worth considering for higher net worth investors with larger portfolios, but less relevant for just one or two properties. The key is analyzing both scenarios to determine which optimizes your situation in terms of taxation, asset protection and estate planning.

We work closely with a select group of lenders who understand our clients special needs as property investors and will select the right lender that is able to provide loans in different structures. If necessary, we are also able to refer clients to accountants and solicitors who we know to have a good understanding of property investment and are able to advise clients on the best structure for their property investment.

Deciding which structure in which to purchase a property is a very personal choice as everyone’s situation is different. It is worth a visit to a good property accountant to set up the structure correctly in the first place as any changes to the ownership later on can be costly.

However, I highly recommend that a good starting point would be to contact our office to arrange a complimentary consultation with one of our finance strategists. They will be able to recommend a finance strategy for you to move forward in building your property portfolio. Your understanding of and ability to obtain finance will make or break your investment strategy. So it’s a good place to start!

From there you can get the right advice from your own accountant, or an accountant recommended by our finance strategist, as to what structure to purchase your properties in. The finance can then be fine-tuned in line with advice you receive from the accountant.