Disc Trusts for Single People

Hi all

I have had many endless readings and discussions with friends over this topic and would love to get everyone's opinion on the matter:

Discretionary Trusts for single people: How to best set up IP ownership in a DT when it is just you, solo, single, no brothers, sisters, wifes, kids, cousins, dogs and cats to be a part of it.

I understand there are no tax benefits to be had in this case but this questions is to do more with asset protection.

By definition a trust is a relationship between the trustee and it's beneficiaries, so wouldn't it all cancel itself out once the sole beneficiary is the sole director of the corporate trustee as well as the Appointor of the Trust? Isn't this considered an 'alter-ego' of the sole beneficiary and therefore rule out asset protection benefits of the Trust?

What are everyone's thoughts on this? Do you put in multiple directors you can trust in the Pty Ltd Trustee? Do you just add additional beneficiaries for the sake of it just so you are not sole beneficiary (even if they get zero distributions every year)?

I have been discussing this with a friend who is single and accumulating assets within a few trusts as mentioned above with the view that one day when he does get married the assets are already set up within the right ownership structure.

Would love to hear everyone's thoughts
 
In the same boat and have asked the same question.

I think I'll use a unit trust rather than disc trust (more flexibility imo), and only really for landtax threshold resetting purposes.
 
Just remember that by owning the units in a Unit Trust you have entitlement to the whole or portion of the assets in the trust. Meaning if anyone comes after you they can attack what you are entitled to = your portion of the assets.

Where with a discretionary trust you as an individual can be set up to only be a beneficiary and therefore have no entitlement to any of the assets. You are simply being allocated income from those assets at the discretion of the Trustee (which is a Pty Ltd company that you ultimately control as director).
 
The alter ego argument was used in Smith v Public trustee NSWSC case from a few years ago.

Basically a Dr left a house in her will to a charity - except she didn't own the house. It was owned by a company as trustee for a discretionary trust. She was the sole director of the trustee and sole shareholder. She was also sole appointor and only person to ever have received a distribution or benefit from the trust. The charity wanted that house - but lost.
 
Asset protection will also depend on the terms of the trust. You wouldn't be the sole beneficiary, but one of many potential beneficiaries. There could be parents, neices, nephews, companies, trusts etc

There are 4 types of discretionary trusts and if you had an open class trust - future beneficiaries yet to be born for example and the trustee had the power to accumulate then this would give the greatest asset protection.
 
Hi Terry, thanks for that info.

So what would you recommend for someone in that situation?

Sole appointor, sole director and shareholder of Pty Ltd Co, sole beneficiary.

Are the assets really protected?
 
Hi Terry, thanks for that info.

So what would you recommend for someone in that situation?

Sole appointor, sole director and shareholder of Pty Ltd Co, sole beneficiary.

Are the assets really protected?

yes, but not sole beneficiary. open class.

Yes the assets will be well protected if the individual were to become bankrupt - but read the deed. With many deeds entering bankruptcy triggers the removal of the person as appointor (as an added safety measure). Who could take this role, if anyone. A bankrupt cannot be a director - so who would take this role. Would this person be a beneficiary or a potential beneficiary. Protection against bankruptcy but what about protection from the next controller.

Asset protection on death, incapacity needs to be considered too.
 
In the early stages a unit trust with an individual holding the units wont be a major issue as the units are generally fully geared and so the lender has first rights. Not much equity to worry about.

As equity increases can have a seperate discretionary trust with a gift and loan strategy to protect equity.
 
In the early stages a unit trust with an individual holding the units wont be a major issue as the units are generally fully geared and so the lender has first rights. Not much equity to worry about.

As equity increases can have a seperate discretionary trust with a gift and loan strategy to protect equity.

What he said
 
Using a Unit Trust is a good idea for 2 reasons:

1. Flexibility

2. Allows some equity to build up and then the units could be sold to a discretionary trust which could borrow to buy. Proceeds could be used to pay down the PPOR debt and the interest deductible.

If units sold at market value and consideration is paid there would be good asset protection from that point onwards too.
 
Using a Unit Trust is a good idea for 2 reasons:

1. Flexibility

2. Allows some equity to build up and then the units could be sold to a discretionary trust which could borrow to buy. Proceeds could be used to pay down the PPOR debt and the interest deductible.

If units sold at market value and consideration is paid there would be good asset protection from that point onwards too.

If transferred to a discretionary trust would you be immediately up for land tax (given discretionary has no threshold)? Obviously DTs are good for income distribution but its a chunky cost to pay (land tax) for this privilege?
 
If transferred to a discretionary trust would you be immediately up for land tax (given discretionary has no threshold)?

AFAIK only NSW is the only state with 0 threshold. There are people with properties in other states ya know :p

And I'm not certain a unit trust vs discretionary trust would have a different threshold... one for the accountants?
 
If transferred to a discretionary trust would you be immediately up for land tax (given discretionary has no threshold)? Obviously DTs are good for income distribution but its a chunky cost to pay (land tax) for this privilege?

Depends on the state the property is located in and the date. Transferring units to a DT for property located in NSW will mean the land tax will be payable from the next assessment date - new years eve.

Unit trusts get no threhold in NSW, but a unit holder of a fixed unit trust can get the threshold.
 
Depends on the state the property is located in and the date. Transferring units to a DT for property located in NSW will mean the land tax will be payable from the next assessment date - new years eve.

Unit trusts get no threhold in NSW, but a unit holder of a fixed unit trust can get the threshold.

Ah, silly new south welshmen :)
 
But then a transfer of units would trigger transfer duty in QLD. Not land tax dif though.

Adviser in each state is always a good idea
 
I don't know why this talk about single people and discretionary trust.

Married people have to have a lot more discretion. And trust.
 
Apologies on reviving an old thread but it's currently relevant to my interests also.

Currently in a relationship which will likely become serious at some point.

Have assets held in my name at the moment, but would like to keep purchasing investments (shares/property) before it gets very serious.

So far this thread has mentioned unit and discretionary trusts.

Interested in what structures single Somersofters have established prior to entering longer-term relationships (i.e. marriage).
 
Apologies on reviving an old thread but it's currently relevant to my interests also.

Currently in a relationship which will likely become serious at some point.

Have assets held in my name at the moment, but would like to keep purchasing investments (shares/property) before it gets very serious.

So far this thread has mentioned unit and discretionary trusts.

Interested in what structures single Somersofters have established prior to entering longer-term relationships (i.e. marriage).

From the context, you seem to be asking whether you can protect your assets from relationship breakdown. The answer is essentially no. Whether they're in a trust or your own name would make very little difference in those scenarios.

Forgive me if my interpretation is wrong.
 
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