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Same person as the sole trustee and sole beneficiary of a discretionary trust?

Discussion in 'Legal Issues' started by Ichigo, 7th Oct, 2015.

  1. Ichigo

    Ichigo Well-Known Member

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    From what I've read so far about discretionary trust:

    "The sole trustee cannot be the sole beneficiary because a trust is a legal relationship between a trustee and the beneficiary or beneficiaries. If a sole trustee were also the sole beneficiary, then this would be an agreement that a person had with themselves. The law says that no trust can exist in these circumstances."

    Options I've found so far:
    1. A trustee can be a beneficiary of the trust as long as there is at least one other beneficiary as well.
    2. Consider having a corporate trustee.


    Would somebody be able to advise on:
    1. Are the above options sound?
    2. What other option(s) might be available?
    3. I couldn't quite understand the last sentence of the below statement about corporate trustee. Can anybody elaborate on that?
    "A corporate trustee can be the beneficiary of the trust - as long as you include the trustee's name and their capacity. For example, 'ABC Pty Ltd in its capacity as the trustee of the ABC Family Trust'. In this case, the trustee is effectively a beneficiary of the discretionary trust for the beneficiaries of the trustee's own trust."

    Thanks :)
     
  2. Greyghost

    Greyghost Well-Known Member

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    Register a company as trustee.
    You: director and secretary of company (possibly shareholder)
    You: beneficiary etc of trust,

    I wouldn't get confused with the corp trustee being a beneficiary of the trust.
    If you DID distribute trust profits to the trustee, then the trustee was litigated, the undrawn benefits of those distributions could be called upon in a litigation, hence why the trustee company's assets are limited to usually the $1 share.

    There is no extra accounting fees in having a corporate trustee, just the annual ASIC fee of $243.
    If you run a small business and then also have a property in another trust, I would recommend having a corporate trustee in the property trust
     
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  3. D.T.

    D.T. Specialist Property Manager Business Member

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    1. Always use a company as trustee
    2. Depends who else you have; partner can be some of the roles. Think about what you're trying to achieve and why.
    3. When writing its name on contracts, documents, applications etc it is usually written as ABC pty ltd atf XYZ trust. Atf stands for 'as trustee for' to indicate company is acting on behalf of trust rather than as a company itself.
     
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  4. Terry_w

    Terry_w Well-Known Member Business Member

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    Sounds like something written by an accountant!

    Doesn't make sense.
     
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  5. D.T.

    D.T. Specialist Property Manager Business Member

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  6. Terry_w

    Terry_w Well-Known Member Business Member

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    It would be extremely unusual for a discretionary trust to have just 1 beneficiary. It would approach a bare trust if that were the case, unless the trustee had powers to accumulate.

    The options are sound, but another simple option is to have an open class of beneficiaries - you and current/future spouses, children, brothers sisters uncles etc.
     
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  7. Ichigo

    Ichigo Well-Known Member

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    Thanks guys :)

    I will (after getting legal advice as well):
    A. use a company as trustee
    B. have another person as a beneficiary
    C. find out more about having an open class of beneficiaries to decide if it better suits me than option B.
     
  8. RPI

    RPI Property Lawyer, Town Planner Business Member

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    Check with your broker about B. Having someone else listed as a primary beneficiary can make lenders want to have then give a personal guarantee for any finance
     
  9. Terry_w

    Terry_w Well-Known Member Business Member

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    There would also be much less asset protection for a discretionary trust with just one beneficiary (or two)
     
  10. Art Law

    Art Law New Member

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    I have a related question

    Fact: Why can't a sole trustee be a sole beneficiary?

    The sole trustee cannot be the sole beneficiary because a trust is a legal relationship between a trustee and the beneficiary or beneficiaries.

    If a sole trustee were also the sole beneficiary, then this would be an agreement that a person had with themselves. The law says that no trust can exist in these circumstances.

    However, a trustee can be a beneficiary of the trust as long as there is at least one other beneficiary as well.

    Question: So an individual being sole shareholder of a trustee company for a Family Trust has effective control as would be the case if they were the trustee in person and the Trust may be therefore invalid?
     
  11. Terry_w

    Terry_w Well-Known Member Business Member

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    no
    because at law a company is a separate legal person.
     
  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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  13. A sole trustee / sole beneficiary generally does not occur with a discretionary trust as it has a broader class of potential beneficiaries based upon the deed. A unit trust is more common and care must be taken - Its an accountant problem as few of them understand that issue. Its a key reason why a trustee should be a company. It assists to protect that risk. In the case of a sole unitholder also being trustee then trust merger occurs when a trustee (the legal owner) also becomes the beneficial owner. The trust ceases and the trust is said to merge. Merger isnt always a bad thing. It can be a intentional strategy too.

    There are some issues that affect all trusts and care should be taken :
    - Leases and loans should never be made by the same entity even in a different capacity. eg : A company as beneficiary v's company as trustee.
    - Human trustees where a trust holds property. A simple issue such as death could trigger merger.
    - Parties who would contract with themselves eg ABC Pty Ltd trades and rents premises from the trust which has ABC Pty Ltd as trustee. No lease can be made and hence no rent is capable of being paid. Rent paid actually hasnt been paid its just ABC moving its own funds around and as a consequence there is no negative gearing ?? [This is not a rare example]

    All reasons to ensure :
    1. Legal advice
    2. Ongoing tax support by a adviser who knows trusts well to avoid typical tax problems.
     
  14. RPI

    RPI Property Lawyer, Town Planner Business Member

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    It is the director the court would look at more than the shareholder. Also the appointor is the one with real control, the trustee only has control while they are trustee at the whim of the appointor.