Beneficiaries of a trust

Discussion in 'Accounting & Tax' started by Grandstream, 17th Aug, 2021.

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  1. Grandstream

    Grandstream Member

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    Hello All,

    I've come past a question I can't get a straight answer to. I've asked the ATO, a chartered accountant, google.....not even my book keeper knows for sure.

    The question is can a sole trader be a beneficiary of a trust. So a no ACN only an ABN.

    I know a company and person can be beneficiaries, but no one seems to know if you need to get an ACN to be a beneficiary or if you can remain as a business (no ACN) and be a beneficiary.

    Thanks all in advance.
     
  2. Trainee

    Trainee Well-Known Member

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    What are you trying to achieve?
    A sole trader isnt a separate legal entity.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A sole trader is not a legal entity separate to the person. So you are asking if a person can be a beneficiary of a trust and that is a straight forward yes.
     
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  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Is the person a valid beneficiary of that trust ? Unsure ? This may be affected by the deed and also by tax law which may limit parties outside a family "tree" from being beneficiaries. Most disc deeds provide for "primary" beneficiaries who may be named. Then there is typically a clause which expands on this through relationship. So both huisband and wife do not need to be named, or kids etc. This explains who the broader class of potential beneficiaries may be. However at year end the trustee must make a beneficiary entitled so a potential beneficiary becomes a true beneficiary. This may limit beneficiaries to a "family" in many cases. That is why many call them a family trust. Tax law takes one step further and in some cases may restrict beneficiaries to a family "tree". Then there can be issues with tax or physical residency of the beneficiary too which may be affected to exclude them.
     
  5. thatbum

    thatbum Well-Known Member

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    Kinda scary that apparently a bookkeeper and then a CA couldn’t answer this.
     
  6. Mike A

    Mike A Well-Known Member

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    pretty well anyone can be a beneficiary of a trust. whether they should be is another question.
     
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  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I kinda get the bookkeeper. Lack of experience and qualifications and acumen ...and insurance potentially. Its a bit like asking your hairdresser for advice. You shouldnt expect much.

    But a CA. Yes I did thank that strange. The ATO wont give legal advice either.
     
  8. Trainee

    Trainee Well-Known Member

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    Putting the question in another way that maybe points out the logical problem.

    can an individual be a beneficiary of a trust only in his or her capacity as sole trader, and not in his or her capacity as an individual? (Well, one tfn only, right….)

    How about can an individual be a beneficiary only in his or her capacity as trustee of a specific trust?
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    They are the same thing.
     
  10. Trainee

    Trainee Well-Known Member

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    So the question itself is wrong. A acn/abn has nothing to do with whether an entity (including an individual) is or can be a trust beneficiary or not.

    first year uni question?
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    not even that.

    Some people think a business is an entity. Just a misunderstanding.
     
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  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    No. What a beneficiary does to produce income and their means are irrelevant to the terms of a trust. Easily attacked in court perhaps ? I have never even see a deed which excludes a potential beneficiary based on their employment, wealth or other status. Bloodline and tax residency perhaps as they are very inclusive in expression and meaning. Its bizarre to even try. It may mean a sole trader who stops being a sole trader isnt a beneficiary ? . Or is a dual beneficiary if they were both a sole trader and partner in partnership perhaps ...three maybe if also employed. Just nonsense. Only a human person may be a human beneficiary. Not a number , a job or their address.

    A trust may be beneficiary. A example of the difference between making a trustee or a trust a beneficiary occurs if the trustee were to change and the beneficial interest may sit in the company not the trust. This assumes a trustee is ONLY a trustee and not a company in its own right that may trdae etc. Or have two trustee roles. Easily then misappropriated. This is the "diamond" example. The case law surrounding Michael Hutchense of INXS is harder to find but that is what his apparent trustee did to deceive and steal what was believed to be trust property. The courts understood the concern but were obliged to follow the legal principles based on a sham. Its why accountants shouldnt draft trusts matters. Diamond was an accountant who gave aweful legal guidance to his client. It would potentially mean that the other intended trust beneciaries dont benefit. The deed to a trust will be quite explicit in reference to potential beneficiaries may "include a trust".....This doesnt say "a trustee". The trustee will, under common law, become entitled to legal interests to hold for the beneficial interests.

    This a 100% certain sign you are out of depth and should seek personal legal and tax advice.