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Asking a friend to be the Settlor of my new family trust - downsides?

Discussion in 'Legal Issues' started by scientist, 16th Nov, 2015.

  1. scientist

    scientist Well-Known Member

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    My friend has already graciously agreed to be the Settlor but I am making this thread of my own accord to get public opinion of any risks / downsides / legal liabilities he can potentially be exposed to from doing me this favour.

    Please suggest if any so I can show/discuss with him and give him comfort.

    Edit: a few more details

    Basically I am in the process of setting up a vanilla Family Discretionary Trust using one of those standard trust deeds available for purchase from online vendor - the settled sum is $10 and the bank account is already setup. I just need my friend to sign the deed under Settlor, and then send $10 to this new account. I explained to him after this initial setup, there is no further involvement / no liability whatsoever. I hope I didn't mislead him but that's my understanding of how it all works.
     
    Last edited: 16th Nov, 2015
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    That is best practice - a close but unrelated family friend according to FAQ Discretionary Trusts | NTAA Corporate

    I just use my accountant who sets my trusts up as the settlor. As long as there's no charge for the settled sum, it's no biggy.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I wouldn't trust the NTAA too much.

    What if the settlor is called to give evidence in court about their intentions in setting up the trust?

    How can the bank account be set up if the trust has not commenced?
     
  4. scientist

    scientist Well-Known Member

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    So if the settlor is called in to give evidence and says the wrong things, my trust would be found invalid and I would suffer the consequences - but in terms of his liability, what is there?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I can't think of any possibilities that the settlor could be liable for anything trust related. I am settlor of hundreds of trusts myself.
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    If bank account exists before trust is settled there may not be a trust.
    Other error made by those who use cheap online A4 paper deeds is using a cheap human trustee. Who may become personally liable for a host of problems.

    Where does settlor live ?? This could affect taxes. Like stamp duty.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    More typical liability is stamp duty. Have seen OSR impose duty on a trust interest where the settlor was assessed.....You may be surprised how many accountants (and non accountants) have settled a trust using substantial dutiable value rather than ad valorem stamp duty based on $10 settled sum etc....All because they didn't get legal advice. And OSR don't allow mistake like that to be corrected.

    Dates and sequence are very important. If property is acquired then settled on a trust double duty can also apply.
     
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  8. scientist

    scientist Well-Known Member

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    Thanks for your input

    I set up the account so that there would be somewhere for the $10 to go into and leave a paper trail - how does one settle a trust without the account and also have a paper trail?

    In any case the account name is correctly in the form of abc atf cdef so I hope for all realistic eventualities this will be fine
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No the trust doesn't exist so how could you open the account as trustee for a non existant trust. I would close it down and start again.
     
  10. scientist

    scientist Well-Known Member

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    Thats easy enough thank you for the suggestion

    How would one typically record the $10 initial settlement before the bank account exists?
     
  11. D.T.

    D.T. Adelaide Property Manager Business Member

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    Staple it to the trust.
     
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  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Trustee would make a resolution or minute that $10 has been received from the settlor and is held on trust. Doesn't necessarily have to go into the bank.
     
  13. scientist

    scientist Well-Known Member

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    That's easy enough too, thank you