Legal Tip 104: Structuring a Discretionary Trust Part 1

He only advised on the tax aspect hence my search for further information online. I deal with legislation/case law/practice notes in my day job so I can normally navigate the info I need without too much drama.

In all honesty I'm only interested in it as a means to divy up the assets evenly (putting any potential future disputes aside), future protection of the assets for the kids i.e. not losing a house we give them in a divorce proceeding, and the tax aspect later down the track when they are entering late teen's/adulthood and may want to get more involved in the properties.

Basically I'm looking at setting this up now for a benefit 10+ years down the track. My only hang up at this point is whether to have an individual trustee or company trustee.

 

Have you considered holding in your own name and then leaving them to the kids via a testamentary discretionary trust? An intervivios trust will be easily attackable in divorce whereas a testamentary trust is less easily attacked.

Corporate trustee is the only way to go. If you have an individual trustee then title has to be changed when your kids take over and this can result in stamp duty in some states, such as NSW, depending on the wording of the deed.

 

I haven't come across any info on testamentary discretionary trust so it wasn't even on the radar. I am going to seek some advice from a friend who is a solicitor specialising in tax law.


I definately won't be going down the individual trustee path in that case as it doesn't suit my purposes at all. It hurts paying stamp duty once, I definately don't want to be paying it twice!

 

See my legal tips on testamentary trusts - i have a few such as

What
https://propertychat.com.au/community/threads/legal-tip-9-what-is-a-testamentary-discretionary-trust.612/

Why
https://propertychat.com.au/community/threads/legal-tip-23-why-set-up-a-testamentary-trust.1262/

Legal Tip 102: One or multiple Testamentary Trusts in a will?

The extra benefit of a testamentary trust is that children are taxed as adults on the income from such a trust, s102AG excepted trust income. That means a trust generating $100k income where there are 5 children under 18 - there may be no tax payable.

And stamp duty in NSW on the change in trustee may only apply in some situations such as if changing the trustee changes the beneficiaries.

 

Thanks Terry, appreciate the help. I will have a read of the other threads when I get a chance.

TC

 

A Testamentary Trust looks like the one that will best suit my needs. Do you know a ball park figure on the costs I would be looking at for set up?

My wife and I already have a will in place so I'm thinking it may be simplest to go back to that solicitor to set up the TT.

 

I charge $1,500 to $3,000 or so plus GST which is on the cheaper side I think.

 

I'm a pretty keen DIYer but I might leave this one to the professionals!

 

Drafting your own legal documents is generally not a good idea!

 

On the contrary, drafting your own legal documents is a GREAT idea!

Until you actually have to rely on the document

 

If it is a will you are drafting you will be dead when it is relied on - so not your problem!

 

Thanks Terry et al for this legal tip thread. It is my first post and first question on this forum.

I'm currently a home-owner and planning to buy my first investment property in a trust structure. At the moment doing my research and planning.
Basically my question is around the impact of trust structure on centrelink payment of a beneficiary in an event which I get redundant from work.
Let's say my father or a company is the trustee of an investment property. My mother and I are beneficiaries.
All rental income from the property goes to my mother. Also the loan redraw account of the property contains a substantial amount of money (note: a redraw account which reduces a actual loan - not an offset account).
In this case if I get redundant from work and have no other savings, will I be eligible for centrelink assistance until I find a new job?

Thanks in advance

 

Hi Matt

I don't get many clients wanting advice on unemployment benefits so I have never looked into this in any detail. The laws are also extremely complex. But basically if a beneficiary or a family member of the beneficiary controls the trust then the trust assets will be counted as assets of that person.

 

Thanks! So if I understand you correctly, if my father controls the trust then the property will be counted as his asset, not mine. In which case I am still eligible for unemployment benefit in an event of redundancy although my father's asset level will be affected. Is that right?
And if still unsure, where can I get a definite answer. Not sure if Centrelink can give an answer based on a hypothetical scenario.

 

No, because you are related to your father.

When I studied my masters in law I asked similar questions and was advised to get a barrister's opinion. If you want I will point you to the legislation and you can see if you can make sense. Otherwise you can ask Centrelink, but I don't think they give private binding rulings so any answer they give cannot be relied upon.

 

Other than that you will need to pay for legal advice - which will be costly. I recently sent a client with similar questions to another senior lawyer and his estimate was $5k.

 

Look at the social security act 1991
SOCIAL SECURITY ACT 1991

Go down to
PART 3.18----MEANS TEST TREATMENT OF PRIVATE COMPANIES AND PRIVATE TRUSTS


Read that whole part sections 1207 to 1209K.

 

Yes, please point me to the legislation even though might be hard for me to understand.
Also, does the company as trustee which you have mentioned before make any difference?

 

Not really.

Keep in mind the laws were tightened up to stop this exact thing from happening.

 

What is a reasonable price of getting a new Company/D.Trust set up in NSW to purchase an IP in QLD?

What would the annual accounting fees be, for 1x straight forward Rental IP?

Great posts @Terry_w btw, Much appreciated and many thanks.