Question re Corporate beneficiary of Discretionary Trust

[Plan_Trader]

Does anyone have any ideas what is the current best way to return capital back into a DT after profits have been distributed to a company as a beneficiary? I don't want the corporate beneficiary to have any assets over time, as an asset protection measure. Can the profits after tax be simply gifted back to the DT?

I can always ask the accountants, but sometimes lots of gems of information come from these sort of questions that I may not think to ask them.

Thanks.

 

[Terryw]

hi

It is complicated with companies. Not sure if gifting is as simple as it seems as there are various rules governing companies, see the Corporations Act for the main ones. A director of a company must act in the best interests of that company. It is not you or the same as you even if you own all the shares. I recall reading a case where someone was charged with stealing from their own company even though they owned all the shares.

So, I am not sure if you could gift as it may not be in the best interests of the company.

There may also be a conflict of interest if you are the director of the company and trustee or a beneficiary of the trust.

Better check with your accountant or probably lawyer!

 

[Plan_Trader]

Terry,

Yes, I have a couple of books on Trusts and this is not really talked about. One of the main purposes of a trust is asset protection, but if you consistently distribute to a beneficiary company, then that company ends up owning assets - and because you own the company then it is part of your assets. Guess i'll ask the question of the experts if no one has any further ideas.

Thanks

 

[Terryw]

Hi PT

ideally the shares for your beneficiary company would be owned by another trust.

 

[Plan_Trader]

Terry,

Thanks for the replies.

Hmmm! Yes, that could work.

I am specifically talking about listed equities and cash as the assets - hence wanting to have one portfolio.

So Trust A distributes to Coy A, which is owned by Trust B. Coy A can then lend funds back to Trust A to add to it's investment pool and keep all assets together.

Is this what you are meaning?
Can you have a common trustee company?

Anyone else use this structure?

Thanks.

 

[eggnog]

not sure if this is possible but what about Coy A is a beneficiary of Trust A who owns all shares of Coy A. This way, all income earned from Coy A (after paying 30% coy tax) can be distributed to share holders, this being solely Trust A.

 

[Plan_Trader]

Can't quite get my head around that! Sounds okay, I guess.

I am surprised someone else hasn't actually done what I am asking about.

 

[klublok]

This is very common scenario. Most accountants would ensure that your overall tax rate is never over 30% if possible.

This is usually just a paper distribution (the money is "lent back" to the trust) - so the money stays in the trust, just that the distribution is taxed at the company rate.

So essentially you can use the money to buy shares and other assets in the trust but owes the original distribution to the company beneficiary.

However be aware of any Division 7A loans - companies cannot lend money to related parties unless on commerical basis and there is ACTUAL principal and interest repayments back to the company. Now that you have a corporate beneficiary, your trust can no longer lend money to any human beneficiaries - this will also be caught by Division 7A.

To clear the actual loan between the trust and the company, then you will need to pay any extra "top up" tax to get the actual money out of the company!

 

[Plan_Trader]

Thanks for the info - still not sure I have a definitive answer and I am going to run it by the accountants anyway.