Most suitable vehicle for intergenerational investing

Discussion in 'Wills & Estate Planning' started by Big A, 20th Mar, 2021.

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  1. Big A

    Big A Well-Known Member

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    I think the point off what I’m trying to do here is being missed.
    It’s not about trying to control the investment vehicle when I am gone. It’s about giving them control of the investment vehicle without having to sell everything out of that vehicle because the trust expires and they get hit with a major capital gains event.
    If they decide they want to sell everything pay the capital gains tax and go party with it, then so be it. What I am trying to do it set it up in a way that they are not forced to sell up and re invest in a new vehicle due to perpetuity date.
     
  2. Terry_w

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

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    in that case a trust may not be for you, unless it is a testamentary discretionary trust.
     
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  3. Big A

    Big A Well-Known Member

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    Thank you @Terry_w . I guess it will come down to having the benefit of capital gains tax discount today via using a trust but having to sell down all holdings at some point in the future, or giving up the capital gain tax discount and using a company which can continue on as long as desired and be passed along.

    All I am trying to do is set them up on the best possible path for when they take over. If I can do stuff now that avoids them having to deal with issues in the structure in the future then I will. I will do my best to educate them and prepare them. After that it’s up to them I guess.
     
  4. Terry_w

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

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    80 years is a very long time. You kids might not even be around then.

    You can also form new discretionary trusts every 20 years or so to extend the 80 years.
    e.g. set up a trust now to hold shares
    in 20 years time set up a 2nd trust to hold new shares etc
    (depending on how long you will keep acquiring, could reduce it to every 10 years).
     
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  5. Trainee

    Trainee Well-Known Member

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    Really depends on how much is there too. If there are tens of millions or more, your beneficiaries can afford more advice.

    Say you have two kids and eventually 4 grandchildren and 8 great grandchildren. You start a family trust now. In a few decades you might slowly transfer assets to two new family trusts, one for each of your kids. Rinse and repeat.
     
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  6. ChrisP73

    ChrisP73 Well-Known Member

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    @Big A is giving up the CGT discount a major problem if the company/s make their way into tts? I would imagine there are plenty of tt strategies to minimising CGT, eg not selling assets (TT borrows to distribute cash) or selling assets slowly and use of tt benificieries.
     
  7. ChrisP73

    ChrisP73 Well-Known Member

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    Actually having a holding company might be a really good thing in a TT as it would be the best way to retain earnings and grow the assets of the TT.
     
  8. ChrisP73

    ChrisP73 Well-Known Member

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  9. MWI

    MWI Well-Known Member

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    We can only structure so much the rest will be up to our next generations how they will structure or deal with it. I personally think I cannot control ALL once I am gone and to be honest wouldn't even want to.
    I have non vesting Trusts and TT setup and don't see why I really more? But it depends on your asset base and really how much you wish to control once past away?
    Companies' directors can be sued, go bankrupt etc., so I prefer what @Terry_w suggested too!
    It's good to speak to a specialist in this regard as that's what they would specialize in.
    I also think Estate Planning should be taken care of at the same time as Wealth Building/Creating, as Wealth Protection goes hand in hand. Imagine making $Ms and then someone just comes along and wished to take part just because they can not because they deserve?
    Seems many ugly cases often with blended families and large estates too. Perhaps money changes some people?
     
  10. Paul@PAS

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

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    All the asset planning in the world doesnt help when someone has a STD. You put something where your husband/partner/wife didnt expect it to go. Or your kids.

    The seriously upset partner will take a chunk of assets and the better the apparent asset protection from a TT the more of personal assets and super they take so its of limited protection. This can occur in several generations and the risk can expand with time and with the number of kids you have etc eg Not just your case but your kids and their partners etc. And if they have been given any access or control of the TT assets and income it opens cracks. I saw this a few days ago. The wife of an adult kid has been given a decent share of TT income to save tax. She has her foot in the door.
     
    Last edited by a moderator: 24th Mar, 2021
  11. Paul@PAS

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

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    Tax laws now limit the tax benefits to a TT that injects additional funds. Borrowing may be a problem and dilute any tax concessions. A proportioning rule then applies to consider X% of the income to be excepted and the balance is non-excepted. It cant be fixed either.
     
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  12. Big A

    Big A Well-Known Member

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    Again I think the point of what I am trying to achieve is being missed by some. Its not about controlling anything when I am gone. Its also not about mitigating for every possible outcome or event.

    I understand I cant control what my kids or their kids will do in the future nor or the possible issues that could arise.

    All I am trying to do is structure and plan for the best outcome based on what I already know will happen rather than what might happen. I know that in 80 years who ever is in control will have to dissolve the trust and will result in a significant capital gains tax event. Sure they might have sold down prior to the 80 years and spent all the money already. But in the event they haven't and if possible I would like to give them the option of not having to deal with that problem.

    Hopefully I don't offend anyone by saying this, but I don't get when people say why worry about this, its not going to be your problem and let them deal with it when the time comes. Maybe I feel this way because my kids are still very young and I have a sense of responsibility for every aspect of their lives right now. I don't see this changing regardless of their age but maybe as grown ups I will see it differently. But as of right now I don't see anything that could be more important in my life then my children. I don't see anything that I could do to make their life easier or better being to much effort for me. So if I can can deal with something today that avoids them having to deal with it in the future then that is my priority. No more important job in the world to me than doing just that.

    I appreciate all the feedback. This definitely requires some more homework and thinking. Their is no perfect set up and each structure will have its benefits and disadvantages over the other. Its a matter of working out which is best suited.
     
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  13. Terry_w

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

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    In that case a company might be good, shares held by an individual who passes them to one or multiple TDTs on their death. No CGT when the trust is wound up.
    That would give you say 40 years plus 80 years plus another 80 plus 80 etc
    assuming laws don't change.
    The company could also have dividend access shares held by a trust.
    Best of everything - almost.
     
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  14. Trainee

    Trainee Well-Known Member

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    The other thing to consider is that in 80 years the pot might need to be split into more piles.

    if the assets are say listed shares, gradual sales / transfers into new trusts can work. Or from a TT to an individual over time to lower cg. It’s not just ‘trust winds up next month, what do we do?’
     
  15. Trainee

    Trainee Well-Known Member

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    terry, if the tt held listed shares directly, transferring those shares to a beneficiary at the end of 80 years WILL be a cg taxable event?
     
  16. Terry_w

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

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    in the book 'die with zero' the author makes the point that if people really want to benefit kids or charities etc it is best done before you die. Waiting delays the benefit to the recipient and also you cannot enjoy the gift after death.
     
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  17. Terry_w

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

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    no
     
  18. Paul@PAS

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

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    A beneficiary may merely become absolutely entitled at the trust vesting date or a new subtrust or new trust may even be created. The costbase of the investments may have a signifcant unrealised CGT liability attached to each asset of course.

    eg Sophie is granddaughter of Fred. Fred dies leaving all his shares in a TT which relate to his mining interests in the Pilbara. The shares had a cost of $100m at Freds death but were worth $1billion at that time. 45 years later at the time the trust vests according to the TT will which specifies Sophie turning a specific age the shares have a value of $20billion. Sophie becomes absolutely entitled. She doesnt sell. Probably doesnt need to since the shares produce $190million a year of income. Her tax adviser cautions each $1m of shares she sells has a potential CGT bill of close to $250K. (Sounds like a real family doesnt it ?) TR 2018/6 is a relavnat tax ruling

    It is wise to seek advanced specialised legal tax advice well prior to any trust vesting
     
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  19. Terry_w

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

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  20. Paul@PAS

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

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    That is initially. .... the beneficiary untimately inherits the deceased's costbase. A nice deferral strategy. BUT I frequently find no matter how many times you explain it the issue gets forgotten. VERY important if there are more than one beneficiaries that the tax adjusted assets are given to beneficiaries so that a true "share" of the trust estate occurs. You dont want $1m of cash to Bill and Ben gets $1m shares with a accrued CGT liability of $300K.