Legal Tip 151: Structuring the Ownership of Shares

So for three children it would be 3 trusts?

This sounds far too complicated. Thanks for the links, I'll read through them.

 

You could structure 1 trust so that 2 out of 3 children would need to consent to change the trustee. or a unanimous so that way they would all have to agree or not be able to change the trustee on your death.

 

Would I be the trustee while I'm alive? Who would be the trustee after I pass?

What am I actually losing if I don't use a trust structure? Is it just a bit of tax? Is it a lot of tax? Is it significant?

Can't I just leave it all in my name and then everything splits evenly as per my will? Surely there are people who choose to do that?

 

That is really up to you - there are a variety of ways to structure it.

Its the flexibility to save tax, and potentially asset protection on bankruptcy.

You sure can. But if your children inherit while they are non-residents it will trigger CGT.
Consider incorporating a testamentary discretionary trust in your will - read my posts on those.

 

I honestly don't think I need the asset protection. Is it likely to save a lot of tax?

My understanding is that when an asset is transferred from the trustee of a TT to a beneficiary, CGT is not triggered. Is that not the case for non-residents?

I am definitely incorporating TTs.

 

Hi Terry,

I read through a number of your articles last night and I have a few more questions, please…

1. Is it possible to leave my three children in charge of a disc trust after I pass? (there is no way I could choose just one or two of them).
2. Do my children have the option of choosing to dissolve the trust after I pass and then splitting the proceeds evenly?
3. I think my understanding is that the goal is to allow a trust to continue. If I passed in ten years, it would be foolish for my children to dissolve the trust. So can they allow the trust to continue through their retirement and just distribute the income between three? Can I state something in my will that will enforce that the income from the trust must be split evenly?
4. What happens if one of them wants to sell their portion of shares and the other two want to leave them invested? Is the only way around this by creating three separate trusts?
5. You mentioned that if I have the shares in my name, it will trigger CGT once non-residents inherit. Will a disc trust completely prevent non-residents from triggering CGT K3?
6. Do you have an article on how to stream to non-residents? I believe my accountant said this wasn’t possible.
7. How do people with three children normally set up a disc trust? There's a good chance that my children (or their partners) will not agree on the same way forward and I want to prevent arguments.

Thanks.

 

Yes, if you structure it right.

If you structure it right the trustee, perhaps with consent of someone, can wind up the trust at any point.

They could.

no. The trust assets are not your assets so you cannot deal with them in your will. If it is a discretionary trust the trustee couldn't be compelled to distribute income in any manner, other than by what is in the trust

They won't have any portions. The trustee has the power to deal in trust assets, no one else.

no

No, but it would apply it to be avoided or managed.

The trustee could distribute to a resident or non-resident without distinction, as per normal. But there may be different tax consequences.

99% of people don't consider what happens to the trust and its assets once they die. 99% don't even know who the appointor of 'their' trust is and virtually no one has back up appointors.

 

That will depend on the circumstances. Outside of a trust tax on $100k might be $47,000 inside with a bucket company it might be $30,000. thats $17k saving per year.

It depends on the circumstances, it could be triggered with shares.

It sounds like you need a new accountant and a new lawyer.

 

The apparent bucket company tax saving does need to consider the longer term plan. Its not always the final tax rate. My warning is that when you ever want to dip your hand into that cookie jar a tax consequence will arise. Is that tax issue $0 or higher ?

Eg Fred has a trust and it produces $50K a year of consistent income from shares. It pays $0 extra tax as all the income is franked. Fred loves this as if he was taxed personally there would be a shortfall. After 6 years he is under pressure to buy a bigger better house for the kids closer to better schools. His trust / company arrangement now has $400K of investments after starting with $100K. He thinks thats fantastic since tax was paid and thinks he will just pull the $300K out to help with the new home.

No tax issue ? Wrong. Its a dividend. The shareholder will face their marginal tax rate with credit for the franking. So in its worse case Fred will pay $72,857 shortfall on the dividend. Sure he could have a trust as shareholder in the bucket company but typically even when that occurs the best outcome might be his wife who earns $0. So the shortfall is $43,524 which is a extra 14.58% tax above the company rate. ie 44.5%... Thats more than the top marginal tax rate.

 

The main benefit with the bucket company tho is it can shift tax from this financial year to say 20 years down the track - this will allow massive extra compounding and also allow for the lower rates of tax to kick in (which could be higher too).

Careful planning allows the shares of the bucket company to pass to a Testamentary Discretionary Trust also.

Tax Tip 154: The effect Tax has Compounding of investments Tax Tip 154:The effect Tax has on Compounding of investments

Tax Tip 234: At What Point is a Bucket Company Worth it for Share Investors Tax Tip 234: At What Point is a Bucket Company Worth it for Share Investors?


Tax Tip 253: Income Timing Strategies with Companies Tax Tip 253: Income Timing Strategies with Companies

Legal Tip 207: Bucket Companies and Death Legal Tip 207: Bucket Companies and Death

 

Thanks for all the above information, @Terry_w .

I have read through everything you've written/linked several times, and even though I'm sure you've explained it clearly and simply, it is still beyond my comprehension.

This is just a topic that makes very little sense to me.

I will speak to my accountant and lawyer again. Perhaps if they can explain things using numbers/modelling, it will make more sense.

 

That is the role if an adviser. To give specific personal advice. Its like advice on trusts. May be totally useless for some investors when their circumstances are considered

 

G'day Terry

Thanks for all the tips!

What is your current approx price for a trust setup for purchasing shares and how long does it usually take to set up?

 

Hi Carlossss

I charge $660 for a consultation and $1100 for a trust deed tailored to suit your needs and I can set one up in 24 hours but best to allow a few days for review and amending.

 

Thanks Terry - I'll pm you!

 

you can't

 

haha true! best way to contact you?

 

Web Link at bottom of Terry’s signature would do it!

 

What's the issue with subtrusts?

I've only just come across the term but it seems like a great way to have the trust retain capital (for an additional 7 years) rather than paying out a UPE to a corporate beneficiary.

 

it might be ok to use a subtrust, but they make things more complex. The income generated from the income held on subtrust becomes the income of the UPE beneficiary. so it can be hard to track