Money Advice Q&A

Question

Hi Chris.

My wife and I have recently set up a family trust.

We directly own some residential rentals and one commercial property through a LAQC. Now we have to decide what property to transfer into the trust, and the most effective way to do that.

Have you any advice on advisability of transferring these property types to a trust bearing in mind depreciation claw-back.

Many thanks for your help, Paul

Answer

Hi Paul, thanks for your question.

I'm assuming that all of the properties are in the LAQC?

Without knowing any further details, the basic answer is that you can transfer the shares in the LAQC to the trust (sell the shares to the trust with an appropriate gifting program in place) without needing to sort out depreciation clawbacks as the properties aren't being sold. This is as opposed to selling the properties into the trust. If this is done, however, you will lose the ability to offset the tax credits against your personal income and this may or may not be a problem. What would happen is the trust would receive the tax credits (which, bear in mind can be accrued ndefinitely) and make use of them now, or in the future.

This is a tricky question as there are a number of variables depending on the outcomes you wish to achieve.

Frankly the solicitor that set up your trust should have given you some guidance in this area, failing that you should also be able to get quality asset structuring advice from a good accountant. I cannot over emphasize the importance of seeking quality advice in making these arrangements as the potential costs of doing it wrong can be quite serious. I'd be more than happy to communicate with you further on this issue.

Please note that I extend a 1 hour free initial consultation to GrownUps members in the Auckland area.

Best of luck.

Chris Harris
Moneygym Limited
027 420 9383