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Your trust should own all of your investment properties for two reasons –

  1. To protect them from your creditors, and
  2. more importantly in most cases, to protect them from the nightmare taxes that kick in on death.

So, how should the trust hold that property portfolio? Like this?

1TrustPropDirect

You see the problem? It’s that 45% tax that only leaves 55% to be re-invested back into the portfolio. Surely there’s a better way?

The solution is simple. We interpose a company between the trust and the properties –

1TrustCoProp

With this set-up, the company earns the income, pays 28% tax and has 72% to re-invest. Much better!

That’s why it is a fundamental of trust structures that trusts very rarely earn taxable income. In fact, we hardly ever register our trusts as taxpayers for that simple reason.

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