Real estate is often one of the most valuable assets you can own. But when it comes to safeguarding your properties and optimising your investment for the long term, the structure in which you hold these assets makes a big difference. In Australia, using a trust to hold properties can provide substantial benefits, including asset protection, tax efficiency, and streamlined succession planning.

Why Use a Trust to Hold Property?

• Asset Protection: Holding property in a trust separates the ownership from your personal name, offering an additional layer of security. If personal legal issues or business liabilities arise, the property within the trust is generally safeguarded, ensuring that it remains protected from creditors.
• Tax Efficiency: Trusts provide flexibility in distributing rental income and capital gains, helping minimise the overall tax liability. For instance, a discretionary trust allows you to distribute rental income to family members in lower tax brackets, which can significantly reduce the amount of tax you pay.
• Capital Gains Tax (CGT) Benefits: Properties held in a trust may be eligible for the 50% Capital Gains Tax discount if held for more than 12 months. Additionally, the income and capital gains can be distributed to beneficiaries, potentially lowering the CGT impact depending on their tax situation.
• Succession and Estate Planning: Trusts simplify the transfer of property upon the death or incapacity of the property owner. Instead of going through probate, the trust continues to manage the property according to the original trust deed, ensuring a smooth and efficient transfer to beneficiaries.

Real-World Examples of Holding Properties in a Trust

1. Protecting Rental Properties from Personal Liabilities: Sarah owns multiple rental properties and is concerned about personal liabilities, such as lawsuits. She places her properties in a family trust. In the event of a personal legal issue, the properties are protected, as they are held by the trust and not in Sarah’s personal name.
2. Tax Savings for Property Investors: Ben and Mary are high-income earners and own an investment property that generates a significant amount of rental income. By holding the property in a discretionary trust, they can distribute the income to their adult children, who are university students and have minimal other income. This reduces the overall tax paid on the rental income.
3. Effective Estate Planning for a Growing Portfolio: John and Lisa have a growing portfolio of properties they want to leave to their children. By holding the properties in a trust, they ensure that the assets will be managed and transferred according to the terms of the trust, bypassing the complexities and delays of probate. This gives them peace of mind that their children will receive the properties seamlessly and with minimal tax implications.

Key Benefits of Using a Trust to Hold Property

• Protection Against Legal Risks: Properties in a trust are not personally owned, making them less vulnerable to legal claims or disputes.
• Tax Optimisation: Trusts can distribute income and capital gains to beneficiaries in a tax-efficient manner.
• Long-Term Asset Management: Trusts allow for the centralised management of multiple properties, making it easier to maintain and grow a property portfolio.
• Efficient Estate Planning: Trusts provide a mechanism for property transfer that avoids the costs and delays associated with probate.

Types of Trusts for Holding Property in Australia

• Discretionary Trust: The most common type of trust for holding property, providing flexibility in income distribution and potential tax savings.
• Unit Trust: Ideal for partnerships or joint property ownership. Each unit holder’s share is fixed, making it clear who owns what portion of the trust’s property.