Change of Trustee

[Melbear]

Help.
I've had to change the trustee of my trust, as the company is being/about to be sued. Wrongful suit, but nevertheless it is happening.

Sooooo, I've sacked the company, and set up another one to take over as trustee. Only problem is that the Government has demanded that my trust deed be amended to show that the new company can not and will not in any way benefit (as a beneficiary) from this trust.

Doesn't this go against the whole grain? I mean, I thought when reading Dale's Trust Magic etc. that the beneficiaries included any company that you were director/shareholder/had an interest in, therefore giving you more options when it came time to distribute the funds?

My solicitors say that this provision that the Government is invoking has always been there, but this is the first time that they have EVER seen them enforce it?!

 

[GreatPig]

Why would you want the trustee company to receive distributions anyway? The trustee company is the one that will be sued if the trust is sued, as you are obviously aware, so why would you want it to have any money?

GP

 

[Melbear]

So that once all other beneficiaries were exhausted with the 30% tax rate, I could give it to the company to then distribute at a later date if required.

It's more about the ability to distribute rather than that I really intend to. All literature that I have read on trusts suggest that any company you have an interest in is automatically a beneficiary, so therefore giving you choice.

What suggestions do you have for where I'd distribute the money if it got to t that?

Thanks

 

[GreatPig]

Giving it to a company can do that, but I don't know that I'd want it to be the trustee company.

Also, you have to remember that once the funds are in the company, they are then company funds, with relatively strict rules about what you can do with them. Applying them for your own private use (ie. personal investment) outside the company may run into Div7a issues, and investing in growth assets within a company is not a good idea due to the loss of the 50% CGT discount.

If you want to distribute the company funds as dividends so that you can put them to personal use again, then you have to look at what tax rates the shareholders are on, as giving them a dividend will cost the same amount of tax as if they'd received the trust distribution themselves in the first place. The only benefit of the company is to allow profits to be retained for distribution in a later year, at hopefully a lower tax rate by then (ie. the shareholders will be earning less that year).

And one thing to be wary of if you intend to hold retained profits for a long time, perhaps until the shareholders retire and have no other income, is if the company tax rate gets lowered. My understanding is that dividends can't be franked at higher than the prevailing rate, so if the rate drops, you'll end up with franking credits locked in the company that you can't use. At least that's my understanding.

GP

 

[Melbear]

Thanks for that GP. Bit clearer now.

 

[eggnog]

GreatPig. You've mentioned distribution of profits from a beneficiary company to individuals. What would the scenario be if distributions were instead paid out to the trust itself. Would the tax be capped at the company 30% and then all funds transfered (as dividends) to the trust fully franked. Would the trust then be able to invest with these funds without having to pay further taxes. Or are all income going into a beneficiary trust always taxed at the standard 50% - meaning franking credits would be passed on and a further 20% will be taxed to bring it up to 50%

 

[yc85]

Hey... From my point of view, trustee should not get any benefit as they may be sued for fiduciary duties regarding profits. Although technically they are allowed, you should probably avoid the whole fuss.

Why not add a family company to the trust? You can set one up easily enough and then hold the cash or even invest it and distribute it as dividend whenever you want.

 

[tubs]

What could your trustee company have been doing for it to be sued?

A trustee company shouldnt do ANYTHING except act as trustee. It defeats the purpose of setting up the company as the trustee in the first place.