To Trust a Trust or not?

[bianca]

I would realy like to get an insight from someone who is totally up with benificiary trusts etc.

We know people who have about 8 companies, with trusts set up along side them,20 business names etc. Properties and other investments are bought through the various structures, as well as running their businesses through these.
The businesses get deregistered every 5 years when Asic demands an annual review. Some companies also disappear, and new ones are just bought through shelf companies, and I guess funds transferred etc etc. We have had the "pleasure" of viewing some of their set ups--all the trusts are linked through beneficiary accounts, and money goes from one to the other to the other.They are very clever and when they change the names of their business or company, they only change the 3 or 4 word titles around--eg--they will change things like.. smith and creed family trust no3, to SmithCreed trust number4, and The Smith and Creed Number 5 Trust--to confuse the ATO I guess. ( the names are made up for the purpose of the forum)They have been doing this for a long time.
All private expenses are "washed" through these trusts and companies as loans to one an other. They pay absolutely no tax, ever, and also manage to stay below the means tests to be eligible for Gov benefits etc, even though they are multimillionaires! Their properties just keep getting refurbished and they seem to keep getting wealthier.
Private bills are also just paid from these trusts, and allocated to some of the beneficiaries as "loans", which just keep growing and growing.

Is this all legal?? Sound like the old "bottom of the harbour" type scheme to me. Is this what getting into trusts and asset protection is all about??

 

[DaleGG]

Hi Bianca

At face value, I have some serious concerns with what you have described. Companies are meant to live forever and should not be wound up by ASIC unless there are problems.

Otherwise, some of the things that you describe are perfectly normal and acceptable.

Remember, the rich and wealthy do get to use tax law in ways that the rest of us do not.

I would have a good chat to a solicitor or accountant (preferably both) who is familiar with these things. MRY from this forum appears quite knowledgeable and may be an option....


Dale

 

[bianca]

Thanx Dale,

What are the tax implications of using the trust and dispursing monies from it to beneficiaries?
The particular scenario is like this
Family trust has monies form business and property cash flow transferred into it. The monies are then distributed, on paper, to the benificiaries. Some of the beneficiaries dont show a positive balance, but a negative ( loan) balance, for personal expenses drawn out through out the year.

1)Is this "loan" balance still seen as 'income" at the end of the year when the annual return is done, or not?
2)And if the "loan" is wiped out, does the amount that was allocated as a loan still have taxation implications to the funds in the trust, or the beneficiary?
3) How is it possible that in a discretionay trust, anyone can be named as a beneficiary even without their consent or knowledge?
4) If there are tax ramifications, then how does that then affect the unknowing beneficiary?
5) how can an unknowing beneficiary make sure they are removed as a benificiary?
6) does careful bookwork have to be kept to show all the transactions?

I dont understand how it is allowable, by the ATO, to just name anyone in your trust structure, distribute any amount to anyone, pay private bills and call it a loan, and then no one has to pay any tax.
Can you shed any light on this please/

 

[DaleGG]

Hi Bianca

Where do I start....a trust has different classes of beneficiaries and in most trusts anyone related to the people for whom the trust was specifically created can benefit from the trust.

The beneficiaries do not need to provide their consent to benefit from the trust. There is way for the beneficiary to disclaim a right to the trust but it is best for this to be discussed with your solicitor as it is not something that I am familiar with beyond the basic concept.

The income from the trust is taxable income to the beneficiary regardless of what the loan balance shows at the end of the year. The trust should notify the beneficiaries when the trust distributes income to the beneficiaries.

Yes, very careful bookwork is required.

None of this is tax avoidance and this is why the tax office are not interested. Trusts have been around for 100's of years.....

Dale