Getting shares changed over to drop sons from ownership

[handyandy]

Hi All

A question for the legal eagles on SS.

I have a company where my wife and I own 52% and my two sons own 24% each.

They are now looking to get married etc and I want to seperate them from the company. They are willing to cooperate as they understand the reasons.

Doing a straight buyout and share transfer will trigger CGT and stamp duty as there is property within the company ( I know) so trying to avoid that.

I heard that we could change the class of shares but can't find any other details.

So looking for some input as to other options.

Cheers

 

[alexlee]

If they are all ordinary shares, there's not much you can do to avoid CGT. By classes of shares I'm assuming you're referring to the situation where you issue your sons with Class A and B shares, for example, while you hold the ordinary shares yourself. That way they can still get dividends but without voting power or control of the company.

 

[handyandy]

If they are all ordinary shares, there's not much you can do to avoid CGT. By classes of shares I'm assuming you're referring to the situation where you issue your sons with Class A and B shares, for example, while you hold the ordinary shares yourself. That way they can still get dividends but without voting power or control of the company.

Hi Alex

Yes, I believe that is the idea - change their class. I was under the impression that you could change the class of shares?

Cheers

Ps the other way might be that we water down their shareholding further?

 

[Terry_w]

If the company is not land rich the transfer stamp duty in NSW will be 0.60% of the value of the shares. There are a few different ways to transfer and retain the CGT exemption so I suggest you seek tax advice.

But also consider any protection in a family law situation may be limited because you appear to be entering the transfer with the aim to remove the property from the marriage. It may come to be effective, but there is a possibility that the courts will see through it and or treat the new shareholder as trustee for the son. Family Court can make orders on third parties too.

Certainly worth doing though.

Also, it may be worth considering biting the bullet and fixing the overall structure at the same time.

 

[Mr. Fabulous]

They are now looking to get married

Isn't it illegal for siblings to get married? Congrats on being so open minded though, Andy.

 

[devank]

But also consider any protection in a family law situation may be limited because you appear to be entering the transfer with the aim to remove the property from the marriage.

These assets are accumulated before the marriage. Is that still up for grabs?

If that is the case then what is best way to give a bit of head start to your children without worrying about their future partners?

 

[handyandy]

If the company is not land rich the transfer stamp duty in NSW will be 0.60% of the value of the shares. There are a few different ways to transfer and retain the CGT exemption so I suggest you seek tax advice.

But also consider any protection in a family law situation may be limited because you appear to be entering the transfer with the aim to remove the property from the marriage. It may come to be effective, but there is a possibility that the courts will see through it and or treat the new shareholder as trustee for the son. Family Court can make orders on third parties too.

Certainly worth doing though.

Also, it may be worth considering biting the bullet and fixing the overall structure at the same time.

The company is land rich the value in the company is about $3.1mil in RE value with another couple mil in retained earnings.

This is obviously why my concern.

They are not engaged as yet (one of the sons - for those pedantic) but both couples have set up separate abodes.

Was going to try and get them to go the prenuptial route but one of the down sides of the prenup is that you actually have to spell out the whole asset base. The other thing is that one of the son's is under the thumb and all this emotional BS started to come out (from the GF) so that never progressed further.

Which is where I am at now - how to water down the value of their shares without triggering CGT.

Cheers

 

[Aaron_C]

These assets are accumulated before the marriage. Is that still up for grabs?

You betcha.

 

[Mr. Fabulous]

If that is the case then what is best way to give a bit of head start to your children without worrying about their future partners?

Tell them not to get married (seriously).

There is also the ability for a partner in divorce proceedings to make a claim against future expected inheritance - even though the parents are still alive. In other words, if you are getting divorced and you are expecting an inheritance from your parents after they pass away, the partner can make a claim today against that expected inheritance. Crazy, no?

 

[Dazz]

both couples have set up separate abodes.

More than 6 months ??

one of the son's is under the thumb and all this emotional BS started to come out (from the GF)

That's exactly how it all starts.


Andy, if you wish to secure your asset base, in a rock solid 100% iron clad guarantee way from the ol' daughter-in-law syndrome, I reckon these are your options ;


1. Sell the shares and pay the CGT (could be the cheapest and easily the stress free best option if things go pear shaped).

2. Set up a Testamentary Trust and pop all non-trust assets in there (saves on CGT....the only downside to this is you must die first !!)

3. Both sons start issuing rent receipts....and never get married.


I reckon sit down with Terryw and have a good long chat. I was looking at his CV yesterday, he seems to have about 17 certified qualifications in this area with another 3 on the way....the man is a machine !!!


I'd go for # 1, cos # 2 is damn unattractive, and your sons will be convinced on the pillow conversations that all is OK.

 

[Terry_w]

These assets are accumulated before the marriage. Is that still up for grabs?

I don't know much about family law, but believe it could be up for 'grabs' in at least two ways.

1. As a resource of a party of the marriage/defacto;
2. As assets of the marriage/defacto.

Even assets of a trust established before the marriage can be up for grabs.

The radical solution is a life of celibacy.

 

[Terry_w]

The company is land rich the value in the company is about $3.1mil in RE value with another couple mil in retained earnings.

This is obviously why my concern.


Cheers

Where is the company and property located? In NSW stamp duty on the transfer of shares and units in private companies/trusts is set to be abolished on 01 July next year (may not happen). I am not sure if this would apply to land rich companies.

You should really look at a restructure carefully as it would benefit your tax situation and assist, slightly, in the family situation.

 

[Mr. Fabulous]

Hi Terry, could you go into more detail regarding the pre-marriage assets being attacked, even if they are in a trust?

I have a testamentary trust set up, in which my brother and niece and nephew are the sole beneficiaries. I set it up specifically so that, if I pass away and my brother gets divorced, my SIL can't steal the assets I worked hard to build.

Is there a possibility that, should I indeed die and the assets pass into the TT, that she could still get at them?

Edit: I have been trying (rather unsuccessfully, unfortunately) to get my parents to set up a TT. My half brother is married, and I don't mean to sound doomy and gloomy, but I doubt it will last. I am concerned in relation to their (our parents') assets. If they were to set up a TT, would she (or any other non-blood family spouse for that matter) be able to attack the assets in the TT?

 

[Terry_w]

They are not engaged as yet (one of the sons - for those pedantic) but both couples have set up separate abodes.

But do they meet the definition of 'spouse' under the Family Law Act? Even if not living together they still may.

I have asked family law specialist lawyers about binding financial agreements and some say they are virtually worthless. Others think they have value as I do, but they may still not be 100% effective especially if there is a material change in the relationship. Also you must disclose assets and that would notify the spouse upfront. Any lawyer for the spouse would also recommend they not sign so it can start the relationship off in a bad way.

Personally I think if you marry you should just consider that if you ever split 65% of the assets will go to the spouse. Its a cost of doing 'business' like CGT.

 

[Terry_w]

More than 6 months ??





That's exactly how it all starts.


Andy, if you wish to secure your asset base, in a rock solid 100% iron clad guarantee way from the ol' daughter-in-law syndrome, I reckon these are your options ;


1. Sell the shares and pay the CGT (could be the cheapest and easily the stress free best option if things go pear shaped).

2. Set up a Testamentary Trust and pop all non-trust assets in there (saves on CGT....the only downside to this is you must die first !!)

3. Both sons start issuing rent receipts....and never get married.


I reckon sit down with Terryw and have a good long chat. I was looking at his CV yesterday, he seems to have about 17 certified qualifications in this area with another 3 on the way....the man is a machine !!!


I'd go for # 1, cos # 2 is damn unattractive, and your sons will be convinced on the pillow conversations that all is OK.

Dazz is on to something here.

It may be worthwhile converting the structure to a discretionary trust which none of the sons controls and then look at passing on control of the trust after your lifetime.

For non trust assets, including your shares in the company now, make sure you set up a testamentary discretionary trust under your will so that neither son inherits your personal estate directly. Having a trust there means the assets never become assets of the marriage (ignoring before, which may be long forgotten by then) and this will add strong asset protection (but will not be 100% safe)

 

[moyjos]

Are you planning on giving the sons cash out?? make the sons pay the CGT..
Have they earnt the $$ or are they just getting the benefit of your hard work ??

 

[Rob G.]

1) You need a family law specialist first.

You live in the worst state.

Your sons are already in a relationship.

The shares are their personal property.

2) Possible CGT issue with varying share rights, or Part IVA.

Ideally, all rearrangements should be in place before any 'relationship' that involves interdependency starts.

Did I mention that you live in the worst state for family law ?

The family court is able to interfere with property rights of entities that are not a party to the 'relationship'.

Even if you stashed your wealth overseas, the court (NSW) may still consider it a financial resource when dividing up property.

Did I mention that you live in the worst state for family law ?

Cheers,

Rob

 

[Terry_w]

1) You need a family law specialist first.

You live in the worst state.

Your sons are already in a relationship.

The shares are their personal property.

2) Possible CGT issue with varying share rights, or Part IVA.

Ideally, all rearrangements should be in place before any 'relationship' that involves interdependency starts.

Did I mention that you live in the worst state for family law ?

The family court is able to interfere with property rights of entities that are not a party to the 'relationship'.

Even if you stashed your wealth overseas, the court (NSW) may still consider it a financial resource when dividing up property.

Did I mention that you live in the worst state for family law ?

Cheers,

Rob

Rob, Family law is Commonwealth law. What do you mean about NSW being the worst state?

 

[Rob G.]

Hi Terry,

It is not just the existing property (shares) but also the expected inheritance of the parents' shares.

It is reasonable to expect that the sons will be the ultimate beneficial owners of the underlying property because they were likely issued shares for inadequate consideration as part of a succession plan. These shares have the same rights as the parents (it seems).

The 'spouse' of either son has two angles of attack.

Succession law or a pre-emptive attack through family law.

So state & Commonwealth provisions may overlap to frustrate planning for either.

The main problem seems, at least from the limited facts, that the sons have shares with full share rights AND they have entered into relationships already.

Cheers,

Rob

 

[Terry_w]

Hi Terry,

It is not just the existing property (shares) but also the expected inheritance of the parents' shares.

It is reasonable to expect that the sons will be the ultimate beneficial owners of the underlying property because they were likely issued shares for inadequate consideration as part of a succession plan. These shares have the same rights as the parents (it seems).

The 'spouse' of either son has two angles of attack.

Succession law or a pre-emptive attack through family law.

So state & Commonwealth provisions may overlap to frustrate planning for either.

The main problem seems, at least from the limited facts, that the sons have shares with full share rights AND they have entered into relationships already.

Cheers,

Rob

Death is hopefully long way off.

You are probably referring to the 'notional estate orders' which are available in NSW for an eligible person who has been left out of a will. They can apply for orders under the Family Provision section of the Succession Act and have assets not directly owned by the deceased classified as part of the estate.

But, a daughter in law would not be an eligible person unless she was a dependent on the deceased or in a close interdependency relationship.

Of course if the dad dies and the son inherits then the shares are the son's assets and she would be able to attack them under the family law act.

If the son then died and didn't leave the wife with adequate provision then she could make a claim under Family Provision as well. If the dad had left the shares to a discretionary trust then she may even be able to apply to the court to have these shares declared part of the estate and they could be up for grabs.