Purchasing A Property Under A Trust
You may have heard about the advantages of buying property under a trust, and be curious about what it is and if it’s right for you. Here’s a quick brief to understand the gist of it, courtesy of the KDD Conveyancing experts.
WHAT IS A TRUST?
A trust is a fiduciary relationship between legal entities, where a trustor gives a trustee the legal right to hold title to property or assets for the benefit of a third party. The rules are set out in a Deed.
A typical trust is created by an impartial professional like a lawyer or accountant (the Trustor/Settlor) to give the Trustee (for example, parental investment) legal rights to hold titles to property or assets and manage them, for the benefit of one or more Beneficiaries.
WHY CREATE ONE?
A trust is created for one or more of these reasons:
- to protect high-value assets (like properties, shares, or items) bequeathed to beneficiaries from potential creditors or when the asset owner is ill or otherwise incapacitated;
- to have better control over which beneficiaries get what;
- to maintain privacy over the distribution of assets to beneficiaries (unlike in a will where anyone can see who receives what and how much);
- possibly gain estate tax benefits if designed appropriately;
WHAT TYPES OF TRUSTS ARE THERE?
- Discretionary trusts – The trustee has flexibility and discretion in how income and capital are distributed to beneficiaries.
- Unit trusts – The beneficiaries or “unit holders” are entitled to a fixed distribution of income or capital based on how many units they hold.
- Hybrid trusts – a combination of discretionary, unit or other structures to reap the benefits of multiple structures.
WHAT YOU NEED TO KNOW WHEN BUYING A PROPERTY UNDER A TRUST?
REGISTER A DECLARATION OF TRUST
- From a settlement perspective, we always recommend that clients get a Declaration of Trust prepared and registered on the title immediately following settlement. This is because the title will only show the Trustee’s name, not the Trust and so anyone searching the title will not know that it’s held in trust unless a Declaration of Trust is also registered.
- In future, the buyer may need to prove to the Office of State Revenue that the Trustee holds the land and property on behalf of the Trust. The best way to prove this is to produce the stamped Offer and Acceptance and the stamped Declaration of Trust. For example, this is required when you may wish to vest land out of the trust to a beneficiary, or when you may wish to change the Trustee to a member of a younger generation.
ENSURE ACCURACY
- There must be 100% accuracy in the name and Trustee details in the first version of the Offer and Acceptance, as these will be hard to change once the contract is signed.
- Getting the Declaration right is vital because the Certificate of Title for land ownership shows only the Trustee name and not its connection to the Deed.
KEEP RECORDS SAFE
- The stamped Declaration is the best evidence of identifying the trustee and beneficiaries, and should be kept with the legal documents for the life of the Trust. This may be anything up to 80 years so a long term record keeping system is vitally important.