Should I put in a Trust or not

[Terryw]

Hi sydneycider, just to clarify, I didn't indicate I was in this situation (as I do have a partner and family members to leave my assets to - no kids though and this will not change) however I was just curious as to whether a trust is of benefit if you chose not to leave your assets to anyone.

Even if you have no beneficiaries now, you may in the future.
eg. Your cousin marries a uni student not working

If you never have any one you can distribute money to, you still have the option of forming a company and distributing the money to the company when your taxable rate exceeds 30%. If you had investments in your own name, then you wouldn't have the choice.

As mentioned, you also have asset protection issues, and estate planning issues.

 

[CATA]

Let's assume that you are buying IP's, have no kids, never plan to get married or have kids to pass them onto, put them in the lower income earners name, give them to nieces and nephews or any other scenario that has been discussed here. There is just you, and that's it, forever. Plus you have your landlords insurance that covers liability.

And I know people will say that these things may happen - you might have kids, you might get married etc. For the sake of this post, let's just assume that the above scenario's will not occur.

Is there any benefit in a trust of any description if this is the case and why?

Other than Asset Protection and Estate Planning issues there are tax benifits. How about capping your taxable income to 30%. Using a company as beneficiary can save you $$$$$$$ if your income is high.

Cata

 

[alexlee]

If, I distribute $5,000 to, say, a cousin who has no other income, will the cousin be able to claim that $5k from me? i.e. how do I keep control of the distribution?
Alex

 

[Merovingian]

If, I distribute $5,000 to, say, a cousin who has no other income, will the cousin be able to claim that $5k from me? i.e. how do I keep control of the distribution?
Alex

Hmmm. Good question, I'd like to know the answer as well.

 

[alexlee]

e.g. say I have an 18 year old beneficiary who does not have any income. I distribute $6k to him for 3 years while he's in uni, and enter it as a payable on the trust accounts. I pay no tax on it, but what is to stop the beneficiary to just demand I pay him that $18k?

If you have unpaid distributions to your children, for example, how do you stop them from leeching off those distributions?
Alex

 

[geoffw]

e.g. say I have an 18 year old beneficiary who does not have any income. I distribute $6k to him for 3 years while he's in uni, and enter it as a payable on the trust accounts. I pay no tax on it, but what is to stop the beneficiary to just demand I pay him that $18k?

And possibly worse. 18yo gets a job at Subway, working 15 hours pw. So as a result of your trusts' distributions- not only does not receive the income, but her income tax liability rises as a result of your distribution.

 

[DaleGG]

Hi Alex

Some trusts have a cleverly worded clause that allows distributions to be given to the children, but, the money be paid to the parent to use on behalf of the child's medical and education costs.

Hence, the child is owed nothing at all and cannot make a claim on the trust.

Dale

e.g. say I have an 18 year old beneficiary who does not have any income. I distribute $6k to him for 3 years while he's in uni, and enter it as a payable on the trust accounts. I pay no tax on it, but what is to stop the beneficiary to just demand I pay him that $18k?

If you have unpaid distributions to your children, for example, how do you stop them from leeching off those distributions?
Alex

 

[alexlee]

Hi Alex

Some trusts have a cleverly worded clause that allows distributions to be given to the children, but, the money be paid to the parent to use on behalf of the child's medical and education costs.

Hence, the child is owed nothing at all and cannot make a claim on the trust.

Dale

Brilliant. Thank you very much, Dale. For accounting purposes, would the trust reimburse the child's medical and education costs? e.g. the parent pays $500 for a child's medical costs, and then the trust distributes $500 to the child for tax purposes but in real world cash terms pays the parent $500 as a reimbursement?

I'm just trying to see how this would be reflected in the trust's accounts (thinking like an accountant here).
Alex

 

[DaleGG]

Hi Alex

We normally do the following:

have the minutes reflect that the profit was distributed to the child
have the tax return reflect that the profit was given to the child
have the accounting statements show that the profit was paid direct to the parent.

So, we assume that the parent will spend more than the distributed amount on the child's education and medical costs (not really hard to do, is it) rather than track each individual dollar..

Dale

Brilliant. Thank you very much, Dale. For accounting purposes, would the trust reimburse the child's medical and education costs? e.g. the parent pays $500 for a child's medical costs, and then the trust distributes $500 to the child for tax purposes but in real world cash terms pays the parent $500 as a reimbursement?

I'm just trying to see how this would be reflected in the trust's accounts (thinking like an accountant here).
Alex