Change of trustee

If you purchase the property in your name then you will be on title deeds and any trasfer will result in stamp duty being payable.

It will also trigger a CGT event but given that you would probably transfer the asset for the same price then this would not be an issue.

However stamp duty will be payable on the transfer. Make sure you get the structure right in the beginning otherwise there can be enormous tax issues later on.

One of the risk areas in adding a corporate beneficiary is triggering a resettlement. If the coroporate beneficiary is already named as a beneficary under the trust deed, then clearly there is no resettlement issue to consider. However, it is not so obvious where the company must be nominated or the trust deed altered.

Generally the ATO will accept that a nomination of an additional beneficiary does not result in a resettlement where BOTH of the following conditions are satisfied:-

1. The nomination is pursuant to an already existing power to nominate new beneficiaries which is only exercisable under the terms of the trust in favour of a clearly defined group which it could be reasonable inferred that the trust was intended to benefit; AND

2. It can be shown from the deed and surrounding circumstances that the actual objective, purpose or theme of the trust was to benefit that wider group which includes the nominated beneficiary or beneficiaries.

A greater risk arises where the terms of the trust deed are required to be amended.

If the addition of the beneficiary is as a mere income beneficary then there will be no resettlement issues. However if the addition of the company as a capital or default beneficiary then there are possible resettlement issues.

If a company is to be added as a beneficiary. where possible, it should be nominated as an income beneficiary only.

If the trust deed must be amended then the amendment should only allow the trustee to nominate the company as as income beneficiary, and not as a capital or default beneficiary.

All of the shareholders of the company should be primary beneficiaries or members of their family. Thus the distribution of income to the company will only benefit the family which the settlor intended to benefit.

Note that if the trust deed does need to be amended then stamp duty implications could arise. Refer to Nichols Cabramatta Wholesale Stationary Supplies Pty Ltd v Commissioner of Stamp Duties (NSW). In that case adding a corporate beneficiary resulted in a stamp duty of $34,000

The trust deed amendment could also constitute a resettlement for CGT purposes.

Also if the trust owns pre CGT assets then Division 149 could be triggered. Also refer to paragraph 8 of IT 2340. If the majority of the company’s shareholders are not trust beneficiaries, the Commissioner may try to apply Division 149.

Also if the corporate beneficiary is incorporated part way during the year then the company can only receive distributions made by the trust on or after the incorporation date.

The tax office may also evalauate the purpose of adding a corporate beneficiary. If the sole and dominant purpose is merely to gain a tax advantage then the Commissioner may elect for Part IVA to apply.

All in all see your accountant and/or lawyer. Lots of people have established trusts without a full understanding of trust and taxation law without understanding the full implications.

Sebastian,

If you want to ask Dale, nip over to the Somersoft forums and post a message in the Accounting and Tax or Legal Issues section.

http://www.somersoft.com/forums

GP

Hi Mel,

Sorry to jump in and ask you a side step question about trust.

My question is about the following paragraph and asset protection. [withstupid]

“The trust is not on the title – trusts cannot own anything in their own right. The trustee will be on title – as it is holding the assets ‘in trust’ for the beneficiaries.”

If trust is not on the title and cannot own anything in their own right and the trustee will be on the title and holding the assests in trust for the beneficicaries, if some one sues the trustee, will the assets in trust still be protected. [confused2]

(I asked about asset protection in other thread before and I would like you to clarify this point for me please.)[confused2]

I appreciate your reply as always.[exhappy]

Breakfree

From my understanding, in that situation the appointer can sack the trustee and appoint another one.

But I believe there are situations where the directors of the trustee company may also be liable, in which case you wouldn’t want them as shareholders of the new trustee company.

This is just based on what I’ve read, so get advice from a good lawyer to be sure.

GP

Mel,

Thanks very much for the answer. [exhappy]. I still need to learn a lot more about trust to know the exact outcome before I jump into it.[confused2][happy3]

Breakfree

Mel,

Thanks heaps for pointing me to somersoft forum.[exhappy] I will have a look for more answers there.[happy3]

I have already got the book “Trust magic” which you refered to me in a another post. It is a really good book and answers a lot of my queries. However the more I read about trust on this forum, the more I know that my knowledge about trust is still limited and with the new bill of changing trust rules from this government. I am still not sure about what I should do with setting up a trust.[confused2]

Breakfree

Thanks Mel very much for your advice.[exhappy]

Breakfree