My husband and I are looking to purchase a property with my parents in a discretionary trust we had set up 12 months ago. Are we able to add my parents to an established trust and is it easy to be able to obtain finance under this structure?
You really need to sit down with your accountant and possibly corporate lawyer regarding this. Key aspects to consider:
1. What is the intention of the property purchase? Is it residential or commercial? Is it to be positively or negatively geared? New or existing? Level of debt involved?
2. What are the terms of the deed (e.g. parents may already be included in general beneficiary class)? The deed needs to be reviewed.
3. What time frame do you plan on owning the property?
There are short term and long term aspects to this type of purchase that need to be considered, not least ownership breakup for both tax and succession purposes (do you have siblings? how would they get their share of the property upon parents passing?). Too many key concerns to cover in a forum like this.
When you say 'add your parents to your established trust'. Do you mean add them as beneficiary of the trust or as trustee and part controller of the trust?
Either way the answer is likely to be yes - the trust deed for your trust will spell out what you can and can't do.
As Todd suggests you should be sitting down with an accountant to work through this, reach out to Brendan Curran on this platform. You'll need to be careful if changing the control of the trust, you could lose any tax concessions already built up in the trust (if there are any).
You should also work through the pros & cons of buying through the trust & the resultant impact on your estate planning. When buying assets in a trust, they aren't your assets to be disposed of in your estate. All you can dispose of in your estate is your control to manage the trust - so if you are wanting to leave money/assets to children for example, this may not occur unless addressed appropriately in your will.
one of the first things you need to look at is what is the history of the already existing trust: ie does it have any skeletons in the closet that would cause you to lose sleep at night?? The last thing you need is a headache that might place the trust assets (ie the house) at risk!!
To be honest, the rule of thumb is that the cost of a trust deed is so low that it is often easier to go and get a new "cleanskin"to guarantee no issues. Even taking into account the stamping costs you are often miles better off
And yes you definately need to talk to someone with expertise in the area. The opportunities for you to shoot yourself in the foot by utilising or setting up a trust unneccessarily or incorrectly abound.....and the costs associated with fixing problems can be extremely high
and lastly, the ATO has been working very hard for a number of years to take a lot of the joy out of dealing with trusts: there is no end of problems associated with ensuring that the trust makes an "effective distribution" of the income of the trust. In a nutshell, the ATO doesnt like the idea that you can stream income to beneficiaries on a low marginal rate of tax, and hence is always on the lookout to ensure that the trust sticks to the letter of the law:.......the upshot here is that the compliance costs associated with a trust are sometimes quite high......
good luck with your venture:)
I concur with the previous comments. You should get some specific advice.
Whilst the asset protection and succession planning issues are positive issues previously mentioned, there are some other issues to consider.
One issue not raised previously will relate to land tax. generally you will not get a land tax threshold in a discretionary trust.
In addition, as previously raised, any losses may be "locked up" in the trust.
In addition, if the parents are not potential beneficiaries, be sure that if adding tem specifically doesn't create a question of a resettlement of the trust.
Good luck with it.