Trustee for Family Trust - Use Asset Rich spouse or not

We're setting up a family trust, we will only buy ETFs in this ABC Trust, no property to be held by this trust (as per Terry legal tip). All our family assets so far (cash+property) are under the myself and mrs has no asset.

- if I (own property) is trustee ATF ABC Trust, can tenants sue and claim ETF assets in the Trust (held under me legally ATF trust)? or it's protected because ETF is within trust and property is just personal asset of the trustee?
- I have large cash (from savings/salary) in my bank account. As I can't lend to myself as trustee, can I first transfer my money to wife first as gift (husband/wife) then wife LENDS that cash to me as trustee on commercial loan terms? This cash is not a "equity release" from my loan, i.e. not a borrowed funds.
- if I draw equity from my property, I can't debt recycle to ABC trust if i'm the trustee, this is only possible if wife was the trustee?

trying to see if corp trustee is better for my situation.

 

Sounds like no legal advice has been sought?

see s116 Bankruptcy act

why?

why?

 

Other than cost, what advantage is there to a personal trustee?

 

A better question might be what is the disadvantage?

 

@Terry_w you are right i have not yet obtained legal advice on these specifics and I wanted some background input/thoughts/opinions of the forum so i can ask better questions when i pay for the legal advise:

1) reason of my ask was i didn't understand the difference of asset protection with respect to ETF held by trustee for beneficial owner that is not the trustee himself. I will check with lawyer what happens if trustee is also beneficiary of the trust.

2) & 3) why? this is what i gather from Terry's series of "tax tip" and "legal tip" posts on debt recycle. My own cash holding can't be lent to myself acting as trustee because I can't contract with myself. However if I somehow transfer ownership of my cash to wife, and wife contract with me as a trustee of the Trust, then the Trust is using borrowed money (wife's cash), pay interest to wife, and claim this interest deduction against ETF dividend income. + Wife earns an interest too (income to declare)

+ @Trainee
Corporate trustee is what I've been thinking (not fussed about ASIC cost of 300 odd dollars a year) but as this particular trust is JUST to hold ETF if I could setup with individual to serve both asset protection, AND claiming interest to invest, it was simpler structure. but sounds like corp trustee may be simpler to solve all concerns.

 

You can contract with yourself but whether it will be effective at law is the question. But the courts can still enforce it in equity - it shows the money is your personal asset and has not been settled on trust. I also have 1 or 2 private rulings where the ATO have said that person A can lend to person A as trustee and the trust can claim the interest. in fact they said without a written onlending agreement they said the trust cannot claim the interest.

I might write a new tip on this.

 

There is no real difference in terms of bankruptcy

 

id tend to agree. the setup and annual costs for a corporate trustee just remove a bunch of potential issues.

 

Thanks @Terry_w @Mike A
sounds like Corp Trustee is more clean cut for my needs.

also apology earlier maybe the term "debt recycle" created confusion so clarify:
- Where I'm lending my own cash to trust (via wife, corp trustee whatever) it's not a "debt RECYCLE" just a new loan;
- I have equity built up in property as I purchased all my properties in personal names. This is where i could "debt RECYCLE" by equity releasing from bank as split loan, on-lending to the Trustee on arm's length terms, and claim the deduction.

 

Would / should corporate trustee be considered the default and then arguments made for not using a corporate trustee, rather than the reverse?

 

and you would have to personally claim the interest from the trust as income. What debt recycling?

 

i believe so. for the small upfront and ongoing costs to save such a tiny amount seems imprudent to me. but @Terry_w may have a different view.

 

I set up many trusts for holding shares and debt recycling. Prob 90% are individual trustees and 10% with corporate trustees. Some want a corporate trustee and I try and talk them out of it. There are a few things to watch out for - such as many trust deeds excluding the trustee as a beneficiary

 

Some major reasons why a human trustee is a poor choice (heaps of others)
1. The trustee remains liable
2. Lending. Mr Smith cant lend to Mr Smith (Trustee)
3. Potential risks that a trust doesnt exist. You may be surprised how often people think THEY are the trust and expose trust assets to risk. I have seen trusts that invest in the name of Mr Smith alone....Using an account setup with Commsec well before the trust was formed all because they read a post on PC where someone said the trust name doesnt need to be on the account. Using a company trustee that doesnt perform another role safeguards against this.
4. Cost - Changes to a trust for succession of changes to trustee are costly. However where a company is used a simple change of directors , shareholders etc could be straight forward and involve no cost. However succession on death , incapacity etc must all be considered
5. The above trustee = beneficiary problem. No disc trust wants a sole beneficiary who is also the trustee.

There are also compelling reasons why a company trustee isnt so critical. Particularly if the asset protection risks for that human (or humans) is very low. eg A PAYG salary earner v a medical specialist.

 

Hi Terry, I am confused why corporate trustee is not ideal situation for trusts that main purpose is for holding shares? Corpoarte trustee is more flexible in term of succession plan like adding child to the company down the track. Please shed some light. Corporate trustee is a lot more expensive to set up and annual ASIC fees involved.

 

Is vesting the assets of the trust with a personal trustee, to the trustee, a cgt event?

 

\The only reason would be the annual fee and set up costs, plus the Corporations acts and company law need to be considered.

 

Thanks for the reply. Yah annual fee and set up costs of corporate trustee is higher than individual trustee. What about corporations acts and company law? Can family trust with individual trustee arrive the same outcome as corporate trustee in terms of succession plan?

Thanks.

 

You should seek your own legal advice on this.
The corporations law is very complex and it can be beneficial to avoid it.
Succession will depend on the structure of the trust and the family dynamics.

 

I spoke to the tax accountant and they both refer me to family trust with corporate trustee. I am not sure where I can get further advise. I saw your post regarding

Hi Paul,
What are the compelling reasons that a company trustee isn't so critical in case of PAYG salary earner?
Thanks