How to Set Up a Bucket Company as Beneficiary of an Existing Discretionary Trust A bucket company is a company set up solely to receive income from a discretionary trust. It should never trade or do anything such as own property as its sole purpose is the collecting of funds – in order to cap the tax rate at 30%. Steps in setting one up 1. Read the trust deed Read the trust deed and see if a newly formed company would qualify as a beneficiary. If the answer is it wouldn’t then you cannot set up a bucket company without having the deed amended. 2. If a new company qualifies then how does it qualify? The wording of the deed may require a primary beneficiary to be the director of this company and/or to hold shares. When setting up the company you have to make sure the company qualifies as a beneficiary – otherwise it cannot receive income. 3. Consider the structure of the company The bucket company could end up holding hundreds of thousands of dollars so great care should be taken when setting it up especially with the control and asset protection aspects. Should the shares be owned by the trustee of discretionary trust? Probably as if an individual where to own the shares could fall into the hands of creditors if that individual where to become bankrupt. But also for tax reasons as this will allow the bucket company to pay dividends to the trust and out to a wide range of beneficiaries. 4. When to set up a Bucket company? It is important to get the order right. First the shareholder of the bucket company needs to be set up. To hold shares the entity has to exist before the shares come into existence. However, the bucket company doesn’t, usually, need to exist before the trust it is a beneficiary of. The trust could be set up now, and the bucket company in 10 years for example. 5. Using it Once it is all set up it is ready for use. But before you use it make sure you seek tax advice on whether it is appropriate for that particular year and what the tax consequences will be for the income distributed. Don’t do this without legal advice and don’t start causing a trust to distribute to a company without tax advice.