Shares & Funds Shares held on trust / bank account closed

Just a pretty general question about whether anything special needs to be done for shares to be recognised as being held on trust by a corporate trustee

Discretionary trust was set up with some amount settled and bank account set up. Soon after, a startup was founded as a separate company, with shares allotted to corporate trustee.

The trust bank account (ie corporate trustee ATF trust) later end up being closed as there was no cash flow.

Is it sufficient that the shares were issued in the corporate trustee name, or do they need to be settled into the trust?

I assume that even though the bank account was closed, the trust still continues as it continues holding an asset (ie the shares that it was issued before the bank account closed).

Is that sufficient or the shares need to be settled as trust property?

 

What does this mean? A a trust can't own anything as not an entity. The name on the asic register would be the trustee, but they should indicate they are not the beneficial owner if they hold it as trustee.

If the settled sum was deposited into a bank and this was eaten up by fees then the trust would have failed if it held no other property. This would mean any subsequent assets the trustee acquires would not be held on trust.

 

I would assume the trust has accounted for its assets and liabilities and the settled sum. This is why trust accounting is CRITICAL and will even be relied upon by a court. And the trust assets are registered using a valid HIN etc. That is for the trust. Not just the trustee company...HINs do show trust as do Chess notices etc and if its solely in the company ame you could have a problem and IT may have become the legal owner.
eg Lets assume ABC Pty Ltd as trustee for the XYZ Trust owns shares the HIN will ppear as

ABC Pty Ltd <XYZ A/C>. Chess process doesnt use the word "Trust". For a SMSF it may extend to <XYZ SMSFName A/C>

How did the trust pay or incur the cost of the shares ? transfer form ? Its very unwise to not have a trust bank account. At any point if the trusts stops holding assets its no longer a trust....You cant bring it back. Maintaining a bank account limits that mistake.

 

sounds like the trustee holds shares in a private company

 

What consideration? Nil consideration may be a ESS interest which raises a employee issue. If subscribed then the trust may have paid. If issued to a person there may be a share transfer. There needs to be something and it can vary. The best way to evidence ownership is purchase. The other way is through effecting a transfer. A private Co "can" register ownership as non-beneficial ownership (and it could even choose to retain name of the trust which it wont report to ASIC) but this is never always acceurate or assured as a sign of trust property. But when it is used it may assist to show the trust intentions

 

The shares were issued to the corporate trustee and recorded in Asic in the name of the corporate trustee and as not being beneficially held. They were subscribed for cash long before the bank account closed.

So that should be ok, right?

 

correct, the corporate trustee holds majority stake in a private company. Is HIN relevant in that case?

 

probably. A trust doesn't need a bank account to exist.

 

no

 

HINs are only for Chess holdings. A private Co its irrelevant. However the nature of that registered interest may be inconsistent with a trust having beneficial onwership of the shares. As the shares where issued prior to the bank account closure that should pose no concerns. The trust merely needs to have "trust property" at all times. HOWEVER...when the shares are disposed of you could create a monster. lets consider that problem. Lets assume that the trust doesnt have a bank account and the shares are sold and a profit of $300K occurs. The proceeds on sale go to a bank account held by Mr Khufu. At year end you seek to distribute to Mrs Khufu as she has no income and Mr Khufu's is high. Problem is the trust hasnt distributed to her. It DISTRIBUTED physically to Mr Khufu. It would be pure fiction to report a different tax outcome.

So while a trust doesnt need a bank account to exist...It may need a bank account to exist and fulfil its intended role as a tax vehicle

All this should be simple issues your accounting process and adviser should have addressed.

Trusts should never not account for income, expenses, assets and liabilities at all times. I get asked to assist people with trusts who want a tax return only and refuse to assist as its negligent. I aso get asked alot about the bank account problem and see it as a risk to me to ever suggest a trust doesnt need a bank account at some time. Negligent. You go to all the trouble and cost to setup and maintaina trust to save a little on bank charges and have no bank account. There are free bank accounts too. How does a trust incur and pay costs if it doesnt actually do that? eg tax and accounting fees ?

 

A distribution of money from a trust is not the same as making someone presently entitled to the income of that trust. It is something separate and could be a loan or the account holder could be nominee of the trustee with the trustee having the power to have ownership of trust property held by others. It might not be good practice though.

 

Correct. However in its simplest form its hard to argue income has been distributed to someone when all the trust property including that income in a physical form vests to someone else.

Shortcuts are never great alternatives.

 

Your confusing different legal concepts

 

Resolutions and entitlements can say anything but if the physical sum of the trust assets is given to someone else the ATO wont just accept the income distribution as valid on review. And trustee may be assessed and this can equally apply to capital gains as a element of income. ATO consider trust vesting occurs to the party in receipt of the proceeds. Many then try to argue legal concepts eg sub trust and the like which is not usually accepted. Or they suddenly consider what was paid wasnt a distribution as was recorded but was a loan that will later be reversed without apparent discharge between the beneficiaries and considered a distribution. Dubious.

Ending a trust is a technical issue that should always be well considered and sometimes it isnt. Its often a case of wow - we have the cash so lets pay it out and sort it later as a mere formality.

As a tax adviser its essential I consider what they did so that contingent penalties and issues arent later a matter for concern.

 

Most of this involves legal concepts and best left to the lawyers to give legal advice I think. Anyone acting as trustee of a trust should seek legal advice before transferring trust assets to others - or take a punt themselves.

 

Can the trust bank account be in the name of the trustee?

ie Bank account in corporate trustee name rather than corporate trustee ATF trust?

I assume that's ok if the corporate trustee is just acting as the trustee and no other business, is that correct?

 

any asset of the trust should be in the name of the trustee

 

so you mean there's no formal requirement to have 'ATF trust' in the account name after the name of the trustee?

 

not legally. You might be contractually bound to tell the bank though