Getting assets into a testamentary trust

Discussion in 'Wills & Estate Planning' started by Bob Mullin, 14th Nov, 2019.

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  1. Terry_w

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

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    Yes
     
  2. Terry_w

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

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    The whole idea. I thought, was to increase the capital of the TDT
     
  3. Bob Mullin

    Bob Mullin Active Member

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    That is correct. The intention is to be able to get capital into the TT without having to gift that to Homer before his death and also not necessarily knowing how much Bart will actually be able to contribute. And ideally Bart would be able to contribute more after the Homer's estate has been distributed to the TT.

    Is it possible for the benefit of the debt owed by Bart to Homer (i.e. Homer's right to repayment of the debt) to be bequeathed to a TT that Bart controls? Because as Trainee suggests, I think that would achieve these goals with the added benefit of some asset protection. I had thought this wasn't possible and so had suggested that so much of the loan repaid by Bart to the estate of Homer would then be bequeathed. The distinction is the right to repayment of debt as opposed to the actual proceeds of repayment.

    Sorry if I'm not being clear.
     
  4. Bob Mullin

    Bob Mullin Active Member

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    Also, if a DT vests to a person on the death of that person (i.e. vests in their estate), does this trigger a CGT event/stamp duty?
     
  5. Trainee

    Trainee Well-Known Member

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    My simplistic view is that bart’s debt to homer is an asset to homer. So on death it can be passed to the TT just like another other asset.

    Eg parent can lend a property deposit to an adult child, then on death the debt passes to a TT. This should be protected against claims on the child’s assets?
     
  6. Terry_w

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

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    I thought this is what we were talking about above. Perhaps you could give a simple example with some basic numbers
     
  7. Bob Mullin

    Bob Mullin Active Member

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    FIRST OPTION: Bart gifts $100k to Homer. Homer lends $100k back. Homer dies and bequeaths "the debt owed by Bart to Homer" to a TT that Bart controls. Bart does not pay anything to the Homer's estate. Later after the estate has been distributed to the various TTs and executors have nothing further to do, Bart repays $20k to the TT the controls. Even later, Bart repays $80k to the TT.

    SECOND OPTION: Bart gifts $100k to Homer. Homer lends $100k back. Homer dies and bequeaths "So much of the loan that Bart has repaid" to a TT that Bart controls. Bart repays $20k to the estate. Executors forgive the remaining $80k.

    First option is bequeathing the debt as an asset. Second option is bequeathing cash based on how much Bart has repaid to the estate.

    First option would be ideal if it works.
     
  8. Terry_w

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

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    Yes no reason why either wouldn't work
     
  9. Bob Mullin

    Bob Mullin Active Member

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    Awesome, thanks Terry.

    Also, if a DT were to vest in a beneficiary on the death of that beneficiary, would that be a CGT event/stamp duty? Would it make a difference if the assets of the DT were bequeathed to a TT which used the same corporate trustee as the DT?
     
  10. Terry_w

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

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    Vesting would generally trigger cgt event and duty. But if it was a trust that only held cash there would be neither.

    The trustee of the TDT can be decided after the death with the will nominating Bart as part beneficiary and appointor
     
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  11. ChrisP73

    ChrisP73 Well-Known Member

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    @Terry_w And if the DT contains assets other than cash, ie property, what strategies exist to avoid/defer cgt?
     
  12. Terry_w

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

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    structure the trust so that no beneficiary becomes absolutely entitled. This is then not a CGT event. But will trigger duty still probably.
     
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  13. Paul@PAS

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

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    Some states may concessionally deal with TT assets but also seek guidance on surcharge.

    NSW DUT046).
    The s63 concessional doesnt apply to a vesting of TT property to a beneficiary in the longer term.
     
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