How to best utilise family trust assets

martinv · 31 October 2009

Morning All,

First time out on this Forum and I would apreciate a bit of guidance with my family trust that was set up a couple of years ago, to hold a small amount of shares in the company I work for. My understanding of the mechanics of the trust are pretty basic, but my kids are now all out working and paying Tax on their own incomes, so the benifit of spreading any Trust income arround is small.

My shares are about to be sold (pretty much whether I like it or not), but the good news is the company has done well and they are now worth a couple of Bucks.

When this large wad of money arrives in the Trust Bank account, it will be well in excess of anything I can distribute across the family members at low tax rates, but it appears that if I simply leave it in place we will end up paying a huge ammount of Tax on it.

We presently rent our house and would like to buy ASAP. Can we simply use the Money that arrives in the Trust to buy a property and then Live in it ....... would we have to pay rent to ourselves..?

would appreciate any advice and insight....

Many thanks .... MV

Sir Osisofliver · 31 October 2009

Martin,

You should speak to your accountant or taxation lawyer about setting up a Beneficiary Company under the trust. The trustee can then direct at their discretion the amount of income monies they choose towards this entity. The benficiary company pays tax at company tax rate instead of your marginal tax rates, saving you a bit of tax but the advantage is that you then get franking credits from that payment of tax. The beneficiary company can then make the purchase of the property (and yes you pay the beneficiary company rent), and further incomes can be spread to the other beneficiaries with the tax credits you have accrued.

This DOES NOT CONSTITUTE ADVICE. SPEAK TO A PROFESSIONAL.

Cheers

Sir O

MrBurns · 31 October 2009

Trusts are not all the same, you have to ask your accountant.
Any advice you get on here ( apart from the above line) is likely to be wrong.

Krusty the Klown · 31 October 2009

MrBurns said:
Trusts are not all the same, you have to ask your accountant.

This is correct martinv, any provision can be written in to a trust deed, as long as it complies with trust and contract law.

You will have to read your trust deed. It is like a company's constitution.

martinv · 31 October 2009

Thanks for that fellas..! ..... first Ive heard of Franking Credits.

As you rightly note, I need to talk to my accountant and get him to decypher my Family Trust Documents.

As I understand it in broad terms, I will be liable for at least 30% tax on the money I receive regardless of how I handle it. The advantage of the Franking Credits (if I can claim them) is that I may be able to reclaim the "complete ammount" back through reducing my income tax over a number of years.
..... that would be nice..!

Are there better/other stratergies I should consider, possibly related to Superanuation. Should I perhaps use the money as a deposit for two or three investment properties rather than a family home and rent these out.

It looks as though I have a good option to go abroad for three or four years
but in light of reclaiming the Franking Credits against Australian Income Tax, that may be counter productive.

Once again, apreciate any input....... hopefully I will be able to appear reasonably informed once I get to speak to the accountant.! .... (or not!)

regards ..... Martin V

rock86 · 31 October 2009

The only I condition I have with this is why would you pay rent to yourself??? This house (I'm assuming is your primary place of residence) is then classed as an investment property & if sold will incur capital gains. When you don't have to pay anything if it is your principle place of residence, just a thought.

Gerkin · 1 November 2009

Anyone who buys a property in a company name has rocks in their head. Anyone who buys a PPOR in a trust names has rocks in their head.
These are just my opinions, please shoot me down if you feel the need.
Go and see your accountant.

MrBurns · 1 November 2009

Gerkin said:
Anyone who buys a property in a company name has rocks in their head. Anyone who buys a PPOR in a trust names has rocks in their head.
These are just my opinions, please shoot me down if you feel the need.
Go and see your accountant.

Only the primary residence is tax free, so buying a second property in a Trust isn't a problem, you'll pay tax on the gain anyway.

Gerkin · 1 November 2009

Mr Burns
I knew someone would shoot me down.
Read the scenario.
BTW, I stand by my answer and I do have a understanding of the laws, probably better than you do.

MrBurns · 1 November 2009

Gerkin said:
Mr Burns
I knew someone would shoot me down.
Read the scenario.
BTW, I stand by my answer and I do have a understanding of the laws, probably better than you do.

If this is the scenario,

We presently rent our house and would like to buy ASAP. Can we simply use the Money that arrives in the Trust to buy a property and then Live in it ....... would we have to pay rent to ourselves..?

then no, buying it in a Trust is wrong as the gain will be taxable.

But to say that buying property in a Trust is wrong as a blanket statement is incorrect.

If you already own a home and it's your primary residence why would you not buy the second in a Trust, that may have some tax advantages down the track ?

Gerkin · 1 November 2009

Ive got the scenario correct, and so do you. No trust in this case.
I am a fan of usings trusts to buy properties if it fits. I dont think this fits. Anyway, the Capital Gain will still be taxed in the year the shares are sold so your on a hisding to nothing.

MrBurns · 1 November 2009

Gerkin said:
Ive got the scenario correct, and so do you. No trust in this case.
I am a fan of usings trusts to buy properties if it fits. I dont think this fits. Anyway, the Capital Gain will still be taxed in the year the shares are sold so your on a hisding to nothing.

He'll pay capital gain on the sale of the shares and nothing on the future gain in value of the property if it's his primary residence, is that not correct ?

He cant just roll the money over into a property without paying tax on the gain of the shares.

Gerkin · 1 November 2009

MrBurns said:
He'll pay capital gain on the sale of the shares and nothing on the future gain in value of the property if it's his primary residence, is that not correct ?

He cant just roll the money over into a property without paying tax on the gain of the shares.

I think he was trying to get to that answer.

tasmart · 1 November 2009

martinv said:
When this large wad of money arrives in the Trust Bank account, it will be well in excess of anything I can distribute across the family members at low tax rates, but it appears that if I simply leave it in place we will end up paying a huge ammount of Tax on it.

As others have said it does depend on your trust deed and also you do need to seek tax advice.

However the main tax you will have to pay is on the capital gain and you only need to distribute any income, not the asset (which is the wad of money). The problem is that the capital gain will be distributed in proportion to the income and taxed according to the marginal tax rate of the beneficiary - so you do need an accountant to sort that out! You can leave the income in the Trust but you will be taxed at the maximum rate. That is actually often used as a strategy!

I agree with various comments that your PPOR is best in your own name, but I also think that owning additional property in a Family Trust is a useful strategy.

MrBurns · 1 November 2009

I've actually just bought a property for the ex Mrs Burns in a Trust.

I know it will attract tax when eventually sold but that may not be for 30 years, in the meantime the Trust protects the property from being mortgaged, sold, claimed by any new partner.

The accountant advised that the tax payable will depend on many things at that time so we just went with the Trust, settles later this month.

Gerkin · 1 November 2009

MrBurns said:
I've actually just bought a property for the ex Mrs Burns in a Trust.

I know it will attract tax when eventually sold but that may not be for 30 years, in the meantime the Trust protects the property from being mortgaged, sold, claimed by any new partner.

The accountant advised that the tax payable will depend on many things at that time so we just went with the Trust, settles later this month.

Different Situation is it not?

MrBurns · 1 November 2009

Gerkin said:
Different Situation is it not?

Yes it is, just thought I'd throw it in.
Trusts have their use.

Gerkin · 1 November 2009

I Know they have uses, I have just bought a property via a hybrid trust.

How to best utilise family trust assets

martinv

Sir Osisofliver

MrBurns

Krusty the Klown

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martinv

rock86

Gerkin

MrBurns

Gerkin

MrBurns

Gerkin

MrBurns

Gerkin

tasmart

MrBurns

Gerkin

MrBurns

Gerkin

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