Hdt - 10$

[Andrew_A]

When setting up a bank account for my HDT should I deposit the $10 (noting it's from the settlor if possible) straight into the bank account?

I remember reading that it might be a good idea to staple the 10$ to the trust deed as a permanent record. Would the $10 be stapled after the deed has been stamped? If so this seems like a fairly academic excersize anyhow as all the documents will just be sitting in my filing cabinet.

 

[austini]

Hi,

I think it is preferred now that the settled sum be deposited into the trust's bank account. I often wonder what would happen if the original deed with the $10 attached was destroyed in a fire etc. At least with it in the bank it is in safe custody.

Anyhow what I did was get the Settlor to write a cheque for $10 which I deposited into the trust account. I did however keep a photocopy of the cheque and stamped deposit slip for my own records. But I assume that you would need to be careful if ever you changed accounts so that the settled sum didn't end up intermingled with other funds and subsequently accidentally spent. I created a minute stipulating that a minimum sum remain in the current of any future trust account to protect it and to have a paper record of my intent.

I may be doing a lot more than is required and perhaps Dale, Nigel &/or Nick might like to comment.

Cheers - Gordon

 

[Andrew_A]

Thanks

Excellent reply Austini, I will use those ideas.

 

[Jimmyjamjars]

Deeds

Andrew,
Firstly, stapling the tenner to the back of your deed is adequate as that way, it won't get eaten up in bank fees if you don't purchase within the trust for a while. That's all I've done. Secondly, in QLD, you only need to get the trust deeds stamped if the trust is created or settled with a dutiable transaction. Cash is not a dutiable transaction so no need for stamping.

This document will explain all to you.
http://www.osr.qld.gov.au/practdir/duties/PDDA061-1.pdf
Hope this helps.
JIM

 

[NigelW]

Hi,

I think it is preferred now that the settled sum be deposited into the trust's bank account. I often wonder what would happen if the original deed with the $10 attached was destroyed in a fire etc. At least with it in the bank it is in safe custody.

Anyhow what I did was get the Settlor to write a cheque for $10 which I deposited into the trust account. I did however keep a photocopy of the cheque and stamped deposit slip for my own records. But I assume that you would need to be careful if ever you changed accounts so that the settled sum didn't end up intermingled with other funds and subsequently accidentally spent. I created a minute stipulating that a minimum sum remain in the current of any future trust account to protect it and to have a paper record of my intent.

I may be doing a lot more than is required and perhaps Dale, Nigel &/or Nick might like to comment.

Cheers - Gordon

I like the idea of stapling it to the trust deed because:

1) bank fees will see it gone shortly!
2) a cheque could bounce and we really DON'T want to think through the implications for the proper creation of the trust of that happening!
3) there's physical evidence.

With respect to destruction by fire I don't think there'd be much problem of proof if the Trust was up and running and had assets...don't get too stressed about it (but keep your docs in a fireproof/resistant safe with copies located elsewhere).

Gordon may be going a bit too far...but a little bit of paranoia never hurt anybody did it?

 

[austini]

Thanks Nigel,

When our accountant setup the first Discretionary Trust the $10 settled sum was just stapled to the deed and is held at his office. However when he setup the HDT the instruction letter said to depost the settled sum into the trust's bank account. So I assumed that there must have been a good reason for this change in procedure and didn't really question it. The rest I suppose are just assumptions are my behalf. I personally think stapling it to the deed is the best way for the reasons given above.

Fortunately we don't pay bank fees but that mightn't always be the case.

I'll have to inquire now to see what the reason was for changing the way the settled sum is dealt with.

Nigel, just out of curiousity is it possible to withdraw the settled sum from the bank account and attach to the deed if one desired to do that??

Thanks - Gordon

 

[wbthom]

When setting up a bank account for my HDT should I deposit the $10 (noting it's from the settlor if possible) straight into the bank account?

I remember reading that it might be a good idea to staple the 10$ to the trust deed as a permanent record. Would the $10 be stapled after the deed has been stamped? If so this seems like a fairly academic excersize anyhow as all the documents will just be sitting in my filing cabinet.

Hi Way Solid,

From an asset protection point of view stapling the settlement sum to the deed is very poor because you have no way of legally "proving" when the sum was settled. Not only is it necessary to bank it but for a trust to be adequately "settled" the settlement sum MUSTbe the first entry in the bank account and MUST be banked within 28 days of the date on the trust deed. It's OK to change banks later etc but you also need to keep a copy of the original bank entries to later "prove" that the trust was properly settled - if you don't and are ever sued then a good anti- trust lawer can tear your trust apart - negating your asset protection.

Bill

 

[DaleGG]

HI

I am comfortable with both options:

attaching a $10 note to the original trust deed; or
banking the $10 cheque.

And, I think a lot will come down to the individual situations as to which is appropriate for the person involved.

Dale

 

[wbthom]

HI

I am comfortable with both options:

attaching a $10 note to the original trust deed; or
banking the $10 cheque.

And, I think a lot will come down to the individual situations as to which is appropriate for the person involved.

Dale

Dale if you had to go to court to prove that the trust was legally settled how would you prove that the $10 note stapled to the trust deed was the original $10 settled sum and you had not just stapled a note on a few days before. I am told that stapling it on seems OK to prove the trust is legal from a tax claim point of view but more vulnerable from an asset protection point of view.

Bill

 

[DaleGG]

Hiya Bill

Good question and one, to be honest, that I do not have a conclusive answer for. The legal people that we have spoken to have not expressed a problem with the stapling idea though....perhaps I should talk to them again!

One thought though (off the top of my head) is that the $10 note will have a serial number on it, as they all do, and, the age of the $10 will be obvious from that serial number which would help in proving that the $10 was not recently stapled. I appreciate that this does NOT prove that the $10 was stapled at the time though.

A stat dec could also be signed by the accountant involved; the settlor and the trustee.

Admittedly, these may not be enough to "prove" that the $10 was placed there at the time. But, given how long trusts have been around and that "cheques" were not invented when trusts were originally designed and used....I would hope that "our" clever solicitor would be able to argue that we have merely followed hundreds of years of precedent....

Bill, I see your point though and will look into the matter further with some legal people for my own education.

Dale

Dale if you had to go to court to prove that the trust was legally settled how would you prove that the $10 note stapled to the trust deed was the original $10 settled sum and you had not just stapled a note on a few days before. I am told that stapling it on seems OK to prove the trust is legal from a tax claim point of view but more vulnerable from an asset protection point of view.

Bill

 

[austini]

Hi again,

Re: Wbthom's comment:

"Not only is it necessary to bank it but for a trust to be adequately "settled" the settlement sum MUSTbe the first entry in the bank account and MUST be banked within 28 days of the date on the trust deed."

This is the first time I have heard of the 28 day rule. Due to life pressures at the time and moving house after returning from overseas etc we didn't get to bank the settled sum cheque until 31 days after receipt from the Settlor. However it is the first entry in the account. Surely having a copy of the cheque dated the same day the trust was created would be evidence enough I would have thought.

As Dale suggests one wonders how in the heck trusts have worked over the centuries before cheques were invented

Anyone else here heard of this 28 day rule?

Cheers - Gordon

 

[Jimmyjamjars]

Deeds

From an asset protection point of view stapling the settlement sum to the deed is very poor because you have no way of legally "proving" when the sum was settled. Not only is it necessary to bank it but for a trust to be adequately "settled" the settlement sum MUSTbe the first entry in the bank account and MUST be banked within 28 days of the date on the trust deed.Bill

Bill,
Can you please post some documetation as I know a LOT of people on this forum hold their assets in a trust structure and would be very grateful if it clears up a few mis-conceptions as I for one have never seen this stipulation, this is not to say it isn't correct. Also, I would be very surprised about the stapling the settled sum to the deed point as this is how its been done for centuries.
Cheers,
JIM

 

[Andrew_A]

I like the idea of stapling it to the trust deed because:

1) bank fees will see it gone shortly!
2) a cheque could bounce and we really DON'T want to think through the implications for the proper creation of the trust of that happening!
3) there's physical evidence.

With respect to destruction by fire I don't think there'd be much problem of proof if the Trust was up and running and had assets...don't get too stressed about it (but keep your docs in a fireproof/resistant safe with copies located elsewhere).

Gordon may be going a bit too far...but a little bit of paranoia never hurt anybody did it?

I like the idea of banking a cheque and taking a copy of the cheque and deposit slip, seems to me that should be a fairly good record.

The business accounts all seem to have charges these days (except for a building society perhaps) with Westpac for example charging $5.50/month maintenance fees.

Does the bank account need to always be $10 in credit, or can the balance run down to the allowed $1 without any implications?

I don't have any assets to immediately place in the trust, and my next purchase is not yet planned.

Excellent replies.

 

[austini]

Hey WS,

Confusion seems to reign whenever legal type questions are raised here.

I did some more research and as usual what Dale suggests seems very sensible in that either approach is ok. Much of what I found on the web at various legal and accounting sites mentions banking of the settled sum. So I'm quite happy with what we have done. But as Nigel states one hopes the cheque doesn't bounce. This is very unlikely if you pick a reasonably responsible friend as the settlor.

In terms of concerns over bank fees well I figure I will always have at least one working bank account purely in the trust's name. This is usually considered good practice as it avoids the risk of having personal and trust assets intermingled should trouble arise later on. So the bank fees would apply to the whole account and not just the $10. I would have thought that most people would have noticablely more than $10 in their trust account.

As per the question: "Does the bank account need to always be $10 in credit, or can the balance run down to the allowed $1 without any implications?" I don't know the answer to this but I hope that my cashflow is never that bad that I am concerned about $9. I think our trust's bank account must always have a minimum of $200 in it so the $10 is safe. That is, it won't let me make a withdrawal which would result in the account balance being less than $200.

Professional packages with banks are getting easier to qualify for nowadays. With NAB's professional package I can create as many accounts as I like without incurring any initial or ongoing fees. So if you can manage it a professional package will save you a lot of money in many ways.

Let the confusion continue

Cheers - Gordon

 

[Andrew_A]

Many pitfalls - confused

Am I right in assuming that the cheque should me made out to "XYZ trust" instead of either myself or "ABC pty ltd trading as XYZ trust"?

How do I go about depositing my own money into my trust account to cover all the expenses? Is it just a case of depositing the money/cheque and keeping an accurate record for accounting later on?

 

[austini]

Hi WS,

I'll have a go at your questions again and hope that the gurus will correct me if they don't agree.

If you are going to get the settlor to write a cheque then either of the following should suffice:

XYZ Pty Ltd as Trustee or
XYZ Pty Ltd ATF The XYZ Trust (preferred if the name will fit)

You can just deposit or transfer personal funds to the HDT trust account as desired. I normally just use electronic transfer. However keep record of this using minutes and try to get some simple accounting system in place to keep accurate records of funds loaned to the trust and/or units issued etc. Quicken is quite useful for keeping track of the accounting side of things.

At worst keep sufficient records to provide your accountant with enough info for end of fin year tax processing. It is highly advisable though to record minutes for important events as and when these occur. With general short term loans (eg I temporarily park funds in the trusts offset account until I need the funds) I try to word the minute so that a single minuted meeting gives ongoing approval to move funds back and forth as required with the trustee periodically verifying transactions.

Again this may not be the perfect way of doing things but it is how I do it.

Cheers - Gordon

 

[NickM]

You have all brought up some very valid points.

i have had numerous discussions with lawyers and practitioners in relation to this matter over the years.

I am unaware of any cases that state that the settled sum must be banked within 28 days. I understand that some advisers have stated this in their instructions and as a result clients are led to believe that it is law.

I am happy to be corrected on this point if any case law exists.

If the S Sum is in the bank account and it drops below $10 at any stage then the trust becomes invalid.

If a cheque is stapled to the deed and that account is closed or drops below $10 then again the trust is invalid.

Chris Battens approach is to settle the deed by pinning $10 to the deed when he signs it. A witness is present. He then holds that $10 on behalf of the trust. If the trust is ever challenged then he and a witness were present when the deed of trust was created.

Actually pinning the cash to the deed is very common and very acceptable. This would be preferred over using a bank account or a cheque.

Check your balance sheets. You must ensure that your accountant records the settled sum in the equity section of the trust funds. If this is not there, regardless of where the $10 is located it could cause you grief. Financial Statements are generally the first thing called for in a legal matter.

I follow Battens approach and would no hesitation to appear in court or prepare a stat dec if required to prove the creation of the trust.

Paying stamp duty in NSW also provides another factor in proving a trust is valid. Even though it is not practice in other states many in the legal fraternity do not get their deeds stamped in NSW as they see it as just a grab for revenue by the NSW Govt.

If the trust prepares financial statements, tax returns, pays land tax and prepares minutes each year and follows the rules of the deed then proving the trust is invalid from the beginning would be difficult. I have seen some cases where a deed is stamped at OSR 3-4 years after its creation. Late fees are paid and on it goes.

Can anybody show me some cases of where the settled sum was proven invalid ? I havent come across any.

Have fun
Nick M

 

[austini]

Thanks for that Nick,

Whilst browsing the web recently I skimmed through what looked like case extracts but the problem I think was to do with one of the "primary beneficaries" providing the settled sum and I'm not sure if this was the main reason for the case. And of course this is a definate no no. I didn't keep any record of this information however as it wasn't relevant to what I was looking for. And maybe as a layperson I misunderstood (again).

Getting back to an earlier question. Once the settled sum cheque is banked is it possible for the relevant amount to be withdrawn at a later date and the note for this amount pinned to the deed??? Perhaps one may be considering closing that account or whatever. Off course one's intent would have to be minuted. If you have a copy of the original cheque and proof that it had been banked then I would have thought that it doesn't matter if this original gift of $10 is stored elsewhere at a later date such as pinned to the deed. It would appear that as long as it can be shown that at any time during the trust's existence the trust has an asset or capital of at least the value of the settled sum then there shouldn't be a problem. Whether it was in a bank account but is now in cash seems irrelevant

And in my mind this can perhaps be supported by Nick's statement that: "you must ensure your accountant records the settled sum in the equity section of the trust funds. If this is not there, regardless of where the $10 is located it could cause you grief."

Off course what often happens when a trust is being setup is that the accountant or solicitor etc provide the settled sum. What I have seen mentioned many times by numerous advisors is that when your accountant etc does provide the settled sum everything must be done to prove it was a genuine gift. If in anyway it can be shown that the advisor either directly or indirectly received compensation for or reimbursement of the settled sum then this could be a problem. The worst situation is where the advisor's records show that the settled sum had been billed as a disbursement.

So no matter which way you go about it there appears to be pros and cons of various approaches. But as Nick questions - has this issue ever been brought before the courts?

And like Nick suggests it seems that if you have had the trust for some time, submitted tax returns, acquired assets within the trust and perhaps banks had even reviewed the deed for loans I find it difficult to see how it could then be proven that the trust is invalid. And importantly "never" let your trust's assets fall below the amount of the settled sum.

Man I must be sick to be spending my weekend on this stuff

Cheers - Gordon

 

[GreatPig]

Man I must be sick to be spending my weekend on this stuff

Well that has to be better than spending it down the pub sucking back a few coldies .

I've found this an interesting discussion though, and think it highlights how something seemingly so trivial (like who gives a stuff about $10?) can have such far reaching consequences in the legal world.

Cheers,
GP

 

[austini]

Well that has to be better than spending it down the pub sucking back a few coldies .

UUUmmmm I was just thinking that is what I should be doing instead of reading about trusts

Might go over and check if my neighbour has any home brew left

Have fun - Gordon