Accounting Question

Typical, an accounting question and its the weekend

In our Trust documents Detailed Balance Sheet it has "Current Liabilities"

Unsecured:
Beneficiary loan: Mr & Mrs Tink $123 (example)

Total Current Liabilities $123

Total Liabilities $123

Net Assets $12345

I have to provide a loan acknowledgement for the beneficiary loan from the balance sheet to a government department, but have no idea what, or where this would be

 

A letter from Mr and Mrs Tink to the trust acknowledging the loan?

 

On Monday, I would just ask the government agency what would be sufficient to meet their requirements - an example/sample would be ideal.

 

Ive always preferred the term unpaid present entitlement not beneficiary loan and there are some good reasons for that right @Paul@PFI

If it is a loan from the beneficiaries better to merely classify it as a loan. Its poorly worded by programmers who dont know the potential implications.

 

Unpaid present entitlement sounds like money held by the trust on behalf of the beneficiaries, is it this, or is it a loan from the beneficiaries to the trust?

 

UPE are not loans but entitlements that haven't been paid.

They should be extinguished asap usually

 

It is only an unpaid present entitlement if it is exactly that.
Too many accountants taint the UPE with new credits

 

And Government Departments would likely see these on the asset side of the ledger

 

Yes they are an asset of the person entitled to it.

 

In some cases it can also be paid or even documented and may affect issues in different ways. An unpaid present entitlement can be an irrelevance or a serious issue . Not to be ignored. For a centrelink etc beneficiary it could be serious and reason to seek advice early

 

Agree greyghost. That is why if it was a loan then record it as a loan.

 

"Distribution payable"
it is what it is

 

The money doesn't exists in any account though

We thought it may have been money initially put into the trust (by loan) and due to be repaid?

It is money that the trust owes

Example found:

You provide funds from savings/home equity etc to lend a 30% deposit to the trust. The trust purchases a property using bank funds and your 30% deposit.

The trust then owes the 30% to you and the 70% to the bank. Both are liabilities. You don't have to charge the trust interest in this situation, but obviously you don't pay tax on that 30% when you get it back either.

It is an unsecured loan because the trust has offered no security (mortgage/title) to you over the loan.

So it's an asset (for us) or a liability (for the trust) depending on who owes who the money.

Unpaid present entitlement sounds more relevant

If there are several beneficiaries in the trust, how do you establish who is due what from unpaid entitlements, is it the unit holder receiving income, gearing benefits or all beneficiaries?

 

Will see if this exists

 

That seems much clearer

 

When the trust has enough equity it repays the beneficiaries?

 

Thanks everyone it is getting clearer but we still need to do something, it's an asset that impacts and am currently not receiving any benefit of

If it is a loan to the trust from equity taken from a property (i.e. Line of Credit) we would be paying interest on that

For a Government department however (i.e. Centrelink as Paul mentioned), they probably see it as cash

 

Will follow up on this today, as it seems to be a loan to the trust to invest with using equity from other property ( I think)

 

My software gives me three choices. I prefer to show the unpaid entitlement until it is paid or transferred to loan and thats typically only if its a loan where interest is not involved. . Many clients pay the distribution and it clears the unpaid entitlement without affecting the "loan".. Its a dangerous practice to blend loans if its interest bearing !!

Crediting the income and redrawing the income as an accounting entry will reduce the deductible loan balance. Not uncommon for non-property savvy accountants

 

When the beneficiary demands repayment probably