Family Trust Questions

Hi all,

I'm setting up a Family Trust which will hold a share portfolio and later investment property. Early on, the benefits of the trust will be smaller and asset protection issues lesser. Later these become important, but for now I mainly want to set it up right, start accumulating assets within it rather than outside of it and keep the running costs down initially.

With this in mind, I am considering setting it up with me as the sole appointor and trustee. Later, should it be advantageous, I could set up a company and appoint this as the trustee and appointor (removing me as an individual trustee and appointor).

Can anyone see any issues with this? Are there any specific deed considerations beyond what would normally be included?

Appreciate your thoughts, thanks.
 
Hi all,

I'm setting up a Family Trust which will hold a share portfolio and later investment property. Early on, the benefits of the trust will be smaller and asset protection issues lesser. Later these become important, but for now I mainly want to set it up right, start accumulating assets within it rather than outside of it and keep the running costs down initially.

With this in mind, I am considering setting it up with me as the sole appointor and trustee. Later, should it be advantageous, I could set up a company and appoint this as the trustee and appointor (removing me as an individual trustee and appointor).

Can anyone see any issues with this? Are there any specific deed considerations beyond what would normally be included?

Appreciate your thoughts, thanks.

TerryW seems to be the trust expert around the forums. It may be worth having a dig through his posts. He also started a thread which essentially was just people bombarding him with questions on trusts, so that may help with your planning.
 
Without reading the deed impossible to comment. Having 1 person as appointor and trustee can weaken the asset protection aspects, but I am not aware of any cases other than the Richstar one where this issue was raised. having a company with the same person as the appointor doesn't really increase asset protection along these lines if the individual goes bankrupt, but it would increase protection should the trustee be sued.

If you have a company then you must consider who owns the shares. If you own the shares and went bankrupt the creditors woudl control the company and therefore the trust. Even worse if the same company was appointor! The trustee in bankruptcy would simply distribute all the assets of the trust to the creditors.

There are also 4 broad classes of discretioanry trusts with some weaker than others.
 
Hi all,

I'm setting up a Family Trust which will hold a share portfolio and later investment property. Early on, the benefits of the trust will be smaller and asset protection issues lesser. Later these become important, but for now I mainly want to set it up right, start accumulating assets within it rather than outside of it and keep the running costs down initially.

With this in mind, I am considering setting it up with me as the sole appointor and trustee. Later, should it be advantageous, I could set up a company and appoint this as the trustee and appointor (removing me as an individual trustee and appointor).

Can anyone see any issues with this? Are there any specific deed considerations beyond what would normally be included?

Appreciate your thoughts, thanks.

Lets assume that you have $100K of cash and inject this into the trust. Chances are it will be recorded as a loan to the trust. That's still a personal asset. OK so you gift it into the trust. It still may be a personal asset a creditor in bankruptcy may chase.

Worth talking to a lawyer and what your asset protection issues are and how they might advise on addressing them. A trust isn't a magical solution in some cases.

Personal trustee is one of the worst things anyone can do. The Trustee remains liable... Trustee you, appointor you, beneficiary you, trust property given by you......What trust ?? As Terry says the Richstar decision (which is a isolated decision) could pose a concern as you are the alter ego of the Trust. With asset protection you want to avoid those issues.
 
Thank you all for the replies, some good points. However, I probably jumped into a specific question without providing needed context - sorry.

Where I am at is really evaluating the cost/benefit of setting up a trust. I'll be putting $100k initially and the amount will grow relatively quickly. The primary purpose for the trust is tax effectiveness. The main (or at least most certain) benefit will come when the children are older and the larger income at that time can be directed at them (assuming current laws). Over the life of the trust, the benefits would be expected to be substantial. But this requires getting assets into the trust from now (ie: avoid CGT event transfering in later). However, don't want it to be hugely costly to run the trust in case law changes between now and then, which seems a non-negligible probability.

Asset protection issues are currently very much secondary. The trust or me are unlikely to be sued. Should the situation change (eg: say I were to become a company director, get investment property) it would be good be able to slot in a corporate trustee. But even if I weren't to do this, I believe I should be no worse off than if the assets were held by my wife directly (which is the alternative to a trust) as compared to if she were the trustee. For something it is hard to currently justify on protection grounds, the expense of the corporate trustee seems unnecessary ($2k to set up, $1k for ASIC/minimal accounting/y). But, as said earlier, being able to change this would be a nice 'ace up the sleeve'.

Trust deed terms are not an issue - no trust yet and would develop one with a solicitor.

Assets held would be pretty simple for a while, just shares. Would think I can get an accountant to do accounts & distribution minutes every 3 years (or if there is any other there seems to be a rule change); I do it the other two (I work in finance so while not a trust lawyer or accountant, can follow things if they don't deviate from what has been previously seen). I hope this is a sensible balanced approach between vigilance and cost.

Later, if I am to be exposed to more legal risk, am to buy an investment property, etc -> happily throw more some money at adding the corporate trustee if possible and incurring the annual expense of this and professional accounts every year.

I know the general advice is 'if you are worried about the cost of a trust, don't do one'. I find most things in life are not that simple: if it is a small manageable risk with reasonably probable large gain, then it probably makes sense.

However, if there is any disaster in the above suggestion, I very much appreciate it being pointed out.
 
Thank you all for the replies, some good points. However, I probably jumped into a specific question without providing needed context - sorry.

Where I am at is really evaluating the cost/benefit of setting up a trust. I'll be putting $100k initially and the amount will grow relatively quickly. The primary purpose for the trust is tax effectiveness. The main (or at least most certain) benefit will come when the children are older and the larger income at that time can be directed at them (assuming current laws). Over the life of the trust, the benefits would be expected to be substantial. But this requires getting assets into the trust from now (ie: avoid CGT event transfering in later). However, don't want it to be hugely costly to run the trust in case law changes between now and then, which seems a non-negligible probability.

Asset protection issues are currently very much secondary. The trust or me are unlikely to be sued. Should the situation change (eg: say I were to become a company director, get investment property) it would be good be able to slot in a corporate trustee. But even if I weren't to do this, I believe I should be no worse off than if the assets were held by my wife directly (which is the alternative to a trust) as compared to if she were the trustee. For something it is hard to currently justify on protection grounds, the expense of the corporate trustee seems unnecessary ($2k to set up, $1k for ASIC/minimal accounting/y). But, as said earlier, being able to change this would be a nice 'ace up the sleeve'.

Trust deed terms are not an issue - no trust yet and would develop one with a solicitor.

Assets held would be pretty simple for a while, just shares. Would think I can get an accountant to do accounts & distribution minutes every 3 years (or if there is any other there seems to be a rule change); I do it the other two (I work in finance so while not a trust lawyer or accountant, can follow things if they don't deviate from what has been previously seen). I hope this is a sensible balanced approach between vigilance and cost.

Later, if I am to be exposed to more legal risk, am to buy an investment property, etc -> happily throw more some money at adding the corporate trustee if possible and incurring the annual expense of this and professional accounts every year.

I know the general advice is 'if you are worried about the cost of a trust, don't do one'. I find most things in life are not that simple: if it is a small manageable risk with reasonably probable large gain, then it probably makes sense.

However, if there is any disaster in the above suggestion, I very much appreciate it being pointed out.

A Disaster - Like not seeking tax advice? Trying to setup a trust without advice, on the cheap ? I agree.
 
May also be worth considering separating the assets. From an asset protection point of view you want to try and ringfence you from your assets and each asset from each other.

Eg. Disaster strikes you lose income and can't make the payments on your investment property loan. That takes you and your investment property down (you as personal guarantor). If your shares are in the same trust they are also gone. If separate entity then you can go bankrupt and shares can be saved.
 
Thanks all.

Terry_w - thanks for the link, I had read that, great resource you have made available to us. Also read latest ed. of Renton's book, CPA guide to trust accounting, etc. From pg 18/19 of your book, it seems to describe a similar trustee transition to that I propose and I have not found anything else that suggests changing from an individual trustee to corporate trustee is not possible with a correctly structured deed.

RPI - indeed, if I were to get an investment property I'd be going back to talk to the lawyer; possibly separate trust.

Paul@PFI - "A Disaster - Like not seeking tax advice? Trying to setup a trust without advice, on the cheap ?" - As specified in my post, I'd be setting it up with full advice from a solicitor. First and every third tax return/minutes by accountant. Dividends do not change materially year to year; ATO publishes good guides; if any year anything is slightly different I go to accountant. So it isn't a 'no advice' approach; the only thing missing is intermittent account tax returns. Seems low risk. If you could point out the disaster that'd be appreciated.
 
I had a client wanting to set up a trust to trade shares. For various reasons he wanted to lend money to the trust. But if he was trustee this would not be possible as you cannot lend money to yourself, even if you are acting as trustee. A trust is not a legal entity.

So if you are intending to contract with the trust in the future, another thing to consider.
 
Thanks all.

Paul@PFI - "A Disaster - Like not seeking tax advice? Trying to setup a trust without advice, on the cheap ?" - As specified in my post, I'd be setting it up with full advice from a solicitor. First and every third tax return/minutes by accountant. Dividends do not change materially year to year; ATO publishes good guides; if any year anything is slightly different I go to accountant. So it isn't a 'no advice' approach; the only thing missing is intermittent account tax returns. Seems low risk. If you could point out the disaster that'd be appreciated.

Some examples :
- Dealing with how funds get to the trust
- Timing issues
- Family Tax Election issues
- Tax Deferred CGT issues with stapled securities
- CGT reconstruction etc
- Stamp Duty issues
- Land Tax issues (if trust owns property)
- Failure to maintain trust accounts which = tax
- Trust minutes v's resolutions
- Trustee issues - Human v's Corporate
- Ensuring trust minutes comply with tax law and the definition of trust income
- CGT issues / mistakes
- Div 7A

Just some of the issues clients don't think they have each year.
 
Top