Trustee set-up

Discussion in 'Accounting & Tax' started by BlueBoy, 1st Jul, 2020.

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  1. BlueBoy

    BlueBoy Active Member

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    Hi,

    Just after some advice around setting up a discretionary (family) trust. The main question I have is around whether to set it up with a corporate trustee or myself as an individual trustee?

    Some points to note:

    - I will be looking to set up my own electrical business in the next 6 months structured as a sole trader.
    - This electrical business is required by law to have public liability insurance with a minimum $5 million cover. (I’m thinking this ‘may’ be at least one layer of protection but I don’t fully trust insurance companies to pay out when required)

    I have read that more tradesman running smaller sized businesses are heading back down the sole trader path if their not too big. Perhaps there is better protection now? I’m not sure. I’ve been registered this way for a few years already and it would be a pain to change to a company as I would need to re sit certain courses etc.

    Any advice on the trustee setup and anything else regarding the setup and business structure would be welcomed.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

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    see a lawyer.

    You would want a company as trustee to limit liability as the trustee is personally liable for the debts of the trust - a trust is just a relationship and not a legal entity.
     
  3. BlueBoy

    BlueBoy Active Member

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    Thanks for getting back to me so quickly.

    The trust will only be purchasing shares (LIC’s, ETF’s and individual companies) at this stage so I was more concerned about someone sueing me as a sole trader and having access to the trust assets? Is this possible under the individual trustee setup?
     
  4. Trainee

    Trainee Well-Known Member

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    Dont think youve thought this through or received good advice.
     
  5. BlueBoy

    BlueBoy Active Member

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    Sole trader part? Individual trustee part? Trying to obtain some decent advice... any help would be appreciated
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

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    So the trust won't be operating a business?

    If only buying listed shares there is no risk of the trustee being sued so personal trustee is ok from an asset protection point of view, but there some legal complexities such as you cannot lend to yourself.
     
  7. BlueBoy

    BlueBoy Active Member

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    That’s correct the trust will primarily for the protection of the initial and ongoing investment in listed shares as the initial investment will be quite a bit. I’ll be running the business outside of the trust as it will most likely just ever be myself and a couple of staff.

    I was primarily doing it this way in case of litigation against the business, the trust assets would be protected.
    We may, down the track, put our family home in the trust for similar reasons.

    Will the complexity be in lending the distributions from the trust back to the trust with myself being the individual trustee? I was also going to list my wife and possibly other family members beneficiaries, could she lend to the trust on my behalf?

    Apologies if that doesn’t sound exactly right
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

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    yes your wife and yourself could lend to you as trustee.
    Seek legal advice though
     
  9. Mike A

    Mike A Accountant Business Member

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    having individuals as trustee can be one of the worst decisions you will make. seek advice from a lawyer why that is the case.
     
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  10. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    No risk ? I have seen many individuals trustees subject to personal prosecution by the ATO including criminal offences..Generally arising from offences such a failure to lodge or a failure to comply with a notice. One was a wickenby problem

    IMO a human trustee is not a costsaver.
     
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  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

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    Higher risk with an SMSF but with a discretionary trust holding only publically listed shares there is no risk of litigation unless the shareholder sues the company. An extreme case of tax offences is also a risk
     
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  12. Mike A

    Mike A Accountant Business Member

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    you then have the issue as well as to whether the beneficiary can receive distributions. for an additional once off fee of between $700 to $1,100 it is a very small price for certainty
     
  13. Trainee

    Trainee Well-Known Member

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    And there are a host of issues such as death succession incapacitation wills etc
     
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  14. BlueBoy

    BlueBoy Active Member

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    I believe the quote to set up as with a individual trustee was $700 plus around $300 ongoing each year. The corporate trustee set up was $1400 plus around $600 per year (company tax return). Is there a duty tax on top of that for corporate trustee? What would be a basic breakdown of costs for setting up as corporate v individual?

    Not a lot of your dealing with a large investment which hopefully this should grow into. I just didn’t want to sign up to something I didn’t need..
     
  15. Mike A

    Mike A Accountant Business Member

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    you won't need to do a company tax return with a corporate trustee. you will do a trust tax return only.

    a corporate trustee will have ongoing ASIC fees.

    does the quote include preparing your annual trust distribution resolutions ?

    can't see why a return would cost more with a corporate trustee. maybe someone who doesn't actually know how it works ?
     
  16. BlueBoy

    BlueBoy Active Member

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    Ok that’s good to know. I’ll have to take a better look at it, I’m not sure about the annual distributions but I’d say we will want that set up too. I’m currently overseas so will get it the quote sent via email. Myself and two brothers are all getting a trust setup each and we all have different requirements.

    So the only difference should be the initial set up cost and ongoing ASIC fees with a corporate trustee?
     
  17. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Depending on the trust settlement what is the stamp duty cost. Did they mention that ?
     
  18. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I cant believe you were given advice and are so unclear. Is that a warning sign ?
    Currently overseas ? I would be cautious about settling a trust or commencing as a Director with that as a factor.
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

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    By a lawyer?
     
  20. BlueBoy

    BlueBoy Active Member

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    I am getting these initial numbers second hand via a family member as they are setting up a similar trust.

    I’m also getting advice online via a forum?

    Everything will be finalised in person.