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  • #968128
    Rob T
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    Hi there!

    I’m in the early process of looking for a retail business to take over. From my research so far, Discretionary Family Trust would most likely be the structure that would suit my situation best.

    But I’m not sure how long the process is to set up a family trust and how much it costs. Should I set it up now while I’m looking for the business or can I do that later? Unless if there’s any potential drawbacks or risks, I’d rather spend the costs and deal with the hassles related to it as late as possible.

    Thank you.

    Regards,
    Rob

    #1031055
    Farid Zaki
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    • Total posts: 110
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    Hi Rob,

    The process to setup the trust depends if you are setting up just a trust with a standard Deed or a special tailored made deed. Also if you are going to have a corporate trustee, you need to setup a company as well. Are you going to hold assets in a different trust or in the same trust…etc

    The cost ranges from $1500 – $3500 depending on the options you choose for the Deed, corporate trustee, associated assets trusts…etc

    Another factor you need to consider is if you are going to finance the purchase of the business, lenders take a lot of time approving loans where trusts are involved, as it requires further examination of the structure, Deed…etc.

    #1031056
    Rob T
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    • Total posts: 75
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    Thanks for your info, Farid. I’ve read some of your answers in other threads in this forum as well and I really appreciate your help.

    Depending on the price and cash flow requirements of the business I end up choose to purchase, I may actually need to finance the purchase. So from what you said, Trust may not be the best structure to choose in that case.

    What other business structure would you suggest for a business owned by a husband-and-wife, that would be good for minimising tax? The type of business I’m looking for is quite low risk, so asset protection is not my main concern.

    Also, what other criteria do lenders look at when considering to give out a business loan? Is getting finance for a franchised outlet generally easier? Is there a generic minimum loan-to-value-of-security ratio required by the lenders?

    Thank you.

    Regards,
    Rob

    #1031057
    Farid Zaki
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    • Total posts: 110
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    You are very welcome Rob.

    What I meant by my comment about borrowing, is that lenders take longer to approve deals with Trust structures involved, so start preparing early to get your finance approved.

    In other words a trust sturcture with a corporate trustee is an excellent structure for asset protection and tax minimisation, but is a little bit more expensive to setup and maintain and very hard for people to get their head around understanding it.

    Yes getting finance for a franchised outlet is generally easier, and you can usually borrow more secured against the actual business.

    Lenders can usually lend you 40% – 70% of the business purchase price, if it meets their lending criteria, i.e. you need to have equity in a property or get someone with equity in a property to guarantee the balance of the amount plus costs stamp duty, legals…etc

    #1031058
    newgrange
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    Hi Rob

    I went the company route and its less flexible. I am told a unit trust is the best all-round and much cheaper to run. No limitation on liability though.

    Ian

    L-plater, post: 37360 wrote:
    Hi there!

    I’m in the early process of looking for a retail business to take over. From my research so far, Discretionary Family Trust would most likely be the structure that would suit my situation best.

    But I’m not sure how long the process is to set up a family trust and how much it costs. Should I set it up now while I’m looking for the business or can I do that later? Unless if there’s any potential drawbacks or risks, I’d rather spend the costs and deal with the hassles related to it as late as possible.

    Thank you.

    Regards,
    Rob

    #1031059
    akagrp
    Member
    • Total posts: 315
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    Hello Rob

    Another factor you need to take into consideration is that a Family Trust Deed will require an appointor aswell as a settlor, The Appointor has overall power of the Trust Assets and will have the power to remove a Trustee

    Depending in what state you are in the Deeds will require stamping in NSW the cost is $500 for 1st copy

    Rob family trust are an area we specialise in as well as obtaining finance. When it comes to finance for trusts it is a bit more involved but it is how you present the deal to the bank.

    I can advise though at present banks are very reluctant to lend just on business assets unless it is real estate no matter what structure you are in.

    Best of luck with retail store.

    #1031060
    Rob T
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    • Total posts: 75
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    Thanks Farid, Ian and Anna for your replies and sorry about my delayed response.

    I will research further on Family Trust and Unit Trust and talk to an accountant or a legal adviser about it. Really appreciate your help.

    Cheers,
    Rob

    #1031061
    Avatar Consulting
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    • Total posts: 151
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    Minimising tax

    Hi L Plater

    As has been pointed out, setting up a trust is not an easy path to navigate, but the advice here is good.

    I would like to add another dimension that I feel you raised regarding the trust is planned to minimise your tax obligations.

    Have you spend as much time researching whether the retail industry is something you want to work in anyway first. What I mean is that running a retail store has several critical operating points more important that trying to minimise tax for example.

    Do you have a realistic understanding that retail stores are very cost heavy with outgoings, forced renovations, maintenance and lighting, rent, repairs, etc. These usually bring the expected net profit to under 20% if all is going well.

    Have you discovered what your expected stock turnover is per year and how you will manage to acheive that.

    The reason why i raise these concerns is that you may not need to minimise tax if you have little profit anyway. The closure rate of retail stores is very high in todays tough world of consumer trends.

    Check out the Australian Retailers Association for info.

    #1031062
    James Millar
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    Just some other comments to those above.

    1. Avoid unit trusts (they are less flexible than alternatives – sorry Ian I don’t know who advised you to the contrary).

    2. Corporate trustee sounds unnecessary in these circumstances (no asset protection issues – although I question that in a trading business). Cost for trust with individual trustees is around $700 including $200 stamp duty, tfn, abn reg. Add around $500 for corporate trustee if required.

    3. Bank lvr’s for franchises vary depending on the franchise brand. Many of the big franchises have pre approved lending facilities with a major bank. I think for example boost and salsa have a 50 or 60% lvr and tailored package all ready to go with NAB. If it’s a small or developing franchise then they may not have such an arrangement.

    A Disc trust is actually pretty simple and cost effective. For a retail business with no PSI issues it is perfect for income splitting and tax optimization.

    Best of luck with it.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
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