Trust matters

Our Experts Answer:

While I cannot give you a definitive answer without knowing more of your circumstances, I can outline what is likely to be the best structure for you. A key thing you want to achieve is a good mix of asset protection and tax outcomes. From an asset protection perspective, you want to protect any property that you occupy as your home in a trust. Accordingly, I suggest you settle the new home into your Trust.

From a tax perspective you want to make sure that your bank borrowing is structured effectively. The way to achieve this is to have a rental company established (which could be an LTC) and have that company buy your existing home (which is going to become a rental) from the Trust. The company can then undertake borrowing up to the purchase price of the ex-home and the interest on this will be deductible.

This will provide you with good asset protection and an effective tax outcome, but there are potential adverse tax consequences that need to be considered. One is the bright-line rule. If your existing home has been held for less than two years then the bright-line rule may apply to it, although there is a main home exemption. Be aware that a new five-year bright-line period will then apply to the property in the rental company. I would suggest you get specific professional advice to guide you.