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Liquidation of family trust assets and capital gains tax

Discussion in 'Business, Investment and Economics' started by lindsayf, May 12, 2012.

  1. lindsayf

    lindsayf

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    Hi

    I am executor for an estate that that holds shares in a family trust. Some of these shares have been held for 10-15 years and have accrued significant capital gain. Can people give me an idea of the kinds of ways of dealing with capital gains tax as the assets are liquidated and the proceeds distributed? Ultimately the proceeds will be divided 4 ways equally - I wish to minimise the impact of the CGT.

    I am not asking for financial advice just a few general ideas and maybe links to some useful reading on this as I am not particularly savvy in these matters. BUt I do wish to have some knowledge before talking with the accountant etc.

    many thanks
     
  2. McLovin

    McLovin

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    The estate does not own the assets in the trust nor does it own "shares". There are no shares in a family trust, only an appointer, trustee and beneficiaries. The owner of the trust is the trustee.

    Because the estate does not own the assets in the trust those assets won't get CGT relief (ie no death taxes). If you sell the trusts assets then the either the beneficiaries or the trust will have to pay CGT.

    This is a pretty rough guide, and I'd strongly suggest that you speak to an accountant or lawyer. You don't want to make a mistake and end up with the ATO sending you a big bill for tax.
     
  3. lindsayf

    lindsayf

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    Yes my language was poor-I mean that the estate consists of assets some of which are held in a family trust.

    thks for the reply
     
  4. McLovin

    McLovin

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    But I'm saying that the estate can't own the assets in the family trust. Your relative may have been the beneficiary but he/she had no claim over the assets and they do not form part of his/her estate.
     
  5. Julia

    Julia In Memoriam

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    Is this the same principle that requires a binding nomination for a SMSF ?
     
  6. McLovin

    McLovin

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    Sort of similar. In a family trust the deed should already say who the beneficiaries will be. It may, for example, be something like "Joe Smith and all his descendants".

    The difference is that it's discretionary, whereas an SMSF could be thought of as more like a unit trust. The trustee can decide who gets what and in what amount, which is the reason why lindsayf's relative can't include the trust assets in his/her estate. This is usually done for the purpose of minimising tax, and with the exception of a corporate beneficiary, doesn't actually require a physical transfer of money out of the trust into the beneficiary. At the same time, if the trustee has a falling out with one of the beneficiaries, then they are within the law to just stop distributing any trust income to that beneficiary. Usually, they will get around this by having each of the beneficiaries as an appointer (ie the person/persons who can hire/fire the trustee).

    I'm neither a lawyer or an accountant though, so this is just general knowledge from my dealing with them.:)
     
  7. lindsayf

    lindsayf

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    McLovin said

    If you sell the trusts assets then the either the beneficiaries or the trust will have to pay CGT.


    I may be missing a key point here but this is the key bit I am interested in. Ultimately the trust will be wound up and the assets sold and distributed to the trust beneficiaries.
    So is there an optimal way in terms of minimising the tax burden to beneficiaries?

    Will seek professional advice in due course.

    thanks
     
  8. McLovin

    McLovin

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    You'll need proper advice for that. :)

    You can always keep the trust going if you choose.
     
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