Family Trust with accumulated capital loss - able to be split in divorce?

Discussion in 'Accounting & Tax' started by Perp, 27th Apr, 2018.

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  1. Perp

    Perp Well-Known Member

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    I will, of course, seek and pay for appropriate specific advice as to how this would be achieved in light of the specifics of the Trust deed etc, but the question is:

    My husband and I have a Family Trust with a (significant) accumulated capital loss in it, which can be viewed as an asset - hahaha, we are eternal optimists! - because our intention was to invest in future and offset future capital gains against it, 'tax-effectively'. It's a DT with beneficiaries as us and our kids and any of our relatives, from memory - it was pretty boilerplate.

    We are now divorcing - fortunately possibly the most amicable divorce ever - and wondered if it's at least theoretically possible to split this as a marital asset.

    If not, fortunately, things are so amicable we can probably continue with our previous plan, and just invest equally and benefit equally, and change the Trustee to a third-party Trustee we both trust ... it would obviously be preferable and tidier to just split it if we possibly can, because I'm aware that future partners might not be as amicable as we presently are.

    So: is it theoretically possible to split the Family Trust into two Family Trusts, each with half of the capital loss?
     
  2. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Legal advice on the trust assets which must remain within a trust for the trust to exist should be explored as those assets may be subject of a property settlement. If the trusts has no assets it may cease to exist. The loss may remain available in the trust if it was to later produce a future capital gain. A lot of maybes.

    Can you clone a trust and move or share the loss. No.

    There may be no reason to change the trustee. Just who controls it and the trustee as part of the split. Solicitors may need to amend things. Valuation of the loss would involve some subjective consideration. If neither party has financial resources to use the loss it may be doubtful the value can later be realised.
     
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  3. Greyghost

    Greyghost Well-Known Member

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    And being careful not to trigger a resettlement
     
  4. Terry_w

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

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    I don't think it could be split.

    Why not each go your separate ways, start new trusts and the new trusts could potentially distribute to the loss trust. Need to be careful, but could be possible.
     
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  5. Perp

    Perp Well-Known Member

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    The Trust doesn't have any assets except a small bank account. Our advice thus far - hopefully not erroneous! - is that future capital gains can be offset against the accumulated capital losses.
    Because we weren't smart enough to think of that. Good idea.
     
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  6. Terry_w

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

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    I wouldn't even worry about changing the trustees. It could be either of you or both. It is not like the trustee can run off with the money, or make bad decisions!
     
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  7. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Unlikely for a former beneficiary that remains a beneficiary. Excluding a former spouse wont trigger any concern.
     
  8. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    It does seem a bit schemey. Schedule 2F could be a injection / family trusts election concern and why I would go with the same trust using the loss.

    Trust loss provisions

    Ex spouse etc doesnt seem a change of control. The trust election would likely nominate spouses and thus be no problem when it becomes just one.
     
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