Legal Tip 370: Discretionary Trusts and Others ‘Buying into’ an Investment

Discussion in 'Legal Issues' started by Terry_w, 8th Jan, 2022.

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  1. Terry_w

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

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    Discretionary trusts are great, but where you want to sell part of an asset held in a discretionary trust there is no ability to bring in others, who are not beneficiaries, other than by transferring title.

    If the asset was held by a company or a unit trust then the shares could be transferred (if a company) or units (if a unit trust). This makes it harder, messier, and more costly to do. It might be done by 3 separate entities entering into a partnership agreement perhaps, but that complicates things.


    Example

    Homer has conducting his snow ploughing business through a discretionary trust. He wants to bring in 2 ‘partners’ so they each own 1/3 of the business. This is not really possible with a discretionary trust.

    If it was a unit trust Homer could transfer 2/3rds of the units in the trust to his mates Barney and Ned. If it was a company, he could have transferred 2/3rds of the shares, but with a discretionary trust there is nothing t transfer as no beneficiary has any interest in the trust or its assets. The only way would be to transfer ownership of the business itself to3 entities with perhaps a company as agent for them. Messy.
     
    Terry_w, 8th Jan, 2022
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