Structuring the Ownership of Shares

Thanks Terry. If that is case then as per diagram or in general anyone who owns the shares in bucket company as individual trustee gets sued then value in bucket company will be at risk...isn't it?

So if I am as the trustee of the family trust as well as 100% share owner of bucket company then franking credits cannot be distributed...is that correct....

is the rough diagram I put in place sit well in understanding?

 

1. If shares fall into hands of creditors they can get at the assets of the company.

2. Company could pay franked dividends, but only to the shareholders.

 

Blackrock offer IAF is something close to what you are after ( but NOT exactly ) ILB , IGB


Product List

Vanguard offer VGB ,VCF ( is not that close to what you are after ) VIF ( for an international focus ) and several others

Investment Products

Russell's RGB

Russell Investments Australian Government Bond ETF | Exchange Traded Funds | Russell Investments

State Street have GOVT

GOVT: SPDR S&P/ASX Australian Government Bond Fund, ETF | SSGA SPDR Australia

and i have probably missed some

although i hold several ETF styles and nave in the past held corporate ( and bank ) bonds and hybrids
i do NOT hold this style of ETF , i like to put the microscope over each interest-bearing security ( if it takes a week to decide on each security .. it takes a week ) and packaged up just doesn't appeal ( to me )

( DYOR )

 

sorry posted the above on the WRONG thread

not sure how it happened

my bad !!!

 

ok so if you have 100% of shares in bucket company and you get sued then creditors get the assets of the company which are shares. then no asset protection there.

Yap that makes sense...so in that case better to have kids as share owners of bucket company as well as eventually dividends (retained income) + franking credits needs to be distributed to kids with less or no income...

OR is that why people have bucket company lend money to trust and in that way income generated via trust has more flexibility on who gets the income but again trust can't distribute franking credit or can it?

@Terryw , do you have some sort of chart/diagram on ideal way to setup trust, similar to you have for your loan structures....

 

What if the children become bankrupt? Why not have the shares held by a trustee.

A diagram for this would be very simple. I will try to draw one and post later.

 

Thanks @Terryw , I think i am not understanding on how you define the trustees and its ownership of shares....looking at the diagram i've put through, I am more confused than before......look forward to your simple diagram ....thanks

 

Think of the trustee and the trust as one. A trust is not a legal entity so the trustee is the one that acts for the 'trust'.

 

Dear KJB and All

IMO this is an incorrect question because if you don't have an "overall plan" then when do you know when it has been achieved or has failed?

I usually start with new clients with a "global look down" of their financial position plus where they want to go and the "when" time frame.

This query sounds like an experiment without parameters so there is no real strategy and therefore no specific answers.

I would suggest that you consider what your maximum commitment could be, based on your total financial capacity and maybe use 20% as a "test bed" to measure your results then you can scale up your results based on good or poor outcomes.

As a savings measure use a DT with Personal trustees to test the waters and appoint a Corporate Trustee and Bucket Co. if you find it works to your advantage.

Finally - remember you only pay once for the structure and can use it for a lifetime in many cases.

Regards
AnthonyK

 

that's odd. I can see the image icon when I'm logged out but when logged in nothing. @Simon Hampel can you pls help?

 

Thanks Terry. I think I am getting confused with individual/corporate trustee and how they control the underlying trust. As individual trustee can be sued so no asset protection....so to avoid that I was putting corporate trustee for both family trust and bucket company.....nonetheless your chart will make it clear i guess once i review that.....

 

who is the trustee of Trust A and who is for B please? and are these trustees corporate or Individual?

What I understood was if you have individual (e.g. Person A) as trustee and some one sues Person A then trust is in trouble? is that right?

And also, as long as franking credits and Bucket co concerns, as per the chart Bucket company can only ditribute franking credits to trust B (being 100% shareholder) but how will it
flow through beneficiaries B, C & D (assuming they are children) and bucket company is used as compounder until they are adult...

 

This is just an theoretical example. You would need to get legal advice on the details..The trustees could be individuals or a company. Asset protection risk needs to be considered but this is not the only thing - estate planning, easier of administration etc too.

If an individual is bankrupted assets they own as trustee are not property that can fall into the hands of the trustee in bankruptcy - directly.

ABCD would also probably be beneficiaries of trust B.Company would pay dividends to the trustee of trust B and trustee would decide which beneficiaries to distirbute the income to.

 

Thanks Terry. I agree that legal advise needed here before implementing….. I am just making sure I understand various options available in the structure…

Can the trustee of Trust A & Trust B the same person here or do you see any downside to it being same person? I mean you can have husband ^ wife respectively as trustees but wondering what could be the downside?

If using bucket company as coumpounder, you can have bucket company lending money back to trust A, then trust A pays interest as well as dividend income from shares invested to bucket company and cycle continues. In that way company is lending all money available straight away to Trust A as soon as it receives it.

What happens if you want to stop that and distribute the money to kids via bucket company, does bucket company force the Trust A to pay off all the capital otherwise if above cycle continues no money is sitting in bucket company at any year as its being on lend to Trust A.

 

The trustees could be the same. but you should ask yourself should they be the same? Possibly not because a person cannot contract with themselves, even under different capacities.

If an individual is trustee they have to consider the asset protection issues - a trustee is personally liable for the debts of the trust. Also succession issues and hassles need to be consider upon their death or incapacity. Easier to change shareholders rather than title deeds.

 

If the company were to lend to the trust this would be a deemed dividend unless a loan company with Div7A ITAA36 is in place. But if the interest would be deductible to the trust and income to the company, if income producing shares were bought. Or the bucket company could invest itself.

A trust must pay out all income otherwise it is taxed at the top marginal tax rate. But a company need not pay dividends.

 

Yes but in this case bucket company is lending money to Trust A. So the entities who are in contract are bucket Company and Trust A. From what you suggesting this is still not good enough because underlying controllers for both entities are same person.

"Div7A ITAA36"....Is this the technical term of having commercial loan agreement in place between trust & company. accept that income to company will be txabale and interest to trust would be deductible..

In that case company would pay 30% tax though...technically no if shares bought are franked but still not the best outcome comparing to investing in trust though?

so wouldn't that be helpful because if this trustee gets sued then liquidator cannot get hold of trust assets.

 

No. A company is a separate legal person so could contract with its shareholders and directors. But what if Trust A wants to contract with Trust B?

Not quite. Div 7A loans have to be made on specific terms, and minimum interest rates – in addition to being commercial.

The company would get franking credits for tax paid.

If the trustee gets sued, as trustee, the trust assets and the individuals assets would be exposed. If an individual gets sued then any assets they own as trustee are unable to be taken – generally.

 

Hmmm...wondering what would be the scenario where this may require at least in your chart? Point of putting bucket company was to add this other legal entity which can have contract to trust A

Agree but still think investing in Trust rather than company would be more tax effective...I read in some forums here....Or is that a myth?

that makes sense...Wondering if someone just invests in shares than chances of having that trustee sued are minimal....while outside trust you may have investment properties & chances become larger..

That's great. thinking about lending between bucket company and trust A, what happens if you want to stop lending eventually and distribute the money to kids via bucket company, does bucket company force the Trust A to pay off all the capital. otherwise if lending cycle continues no money is sitting in bucket company at any year as its being on lend to Trust A.