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Corporate vs individual trustees for a discretionary trust

Discussion in 'Accounting, Tax & Legal' started by MichL, 16th Aug, 2005.

  1. MichL

    MichL Member

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    Can anyone advise the advantages and disadvantages of having a corporate trustee vs individual or joint trustees for a discretionary trust?

    Thanks!
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

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    Hi MichL

    In my view having a company act as trustee of your family trust is definitely the best way to go. There are a number of reasons why. How about I start the ball rolling and we see what sort of list of pros and cons we can compile?

    Advantages:

    1) The Company is a separate legal entity from the people who have set up the trust. There are a number of consequences which flow from this basic fact. One is that it creates another "layer" of protection if the "real" people are sued. The legal owner of the trust assets is the company, not the person. A key principle in asset protection is to create a separation between a person and the ownership of their assets.


    Disadvantages

    1) Cost. It will cost you about $1k to set up a company ($800 of this goes to ASIC in fees) and $212 per year to keep it registered.

    Okay guys...what else??
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

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    C'mon people...a little help here :p

    Okay...how about

    Advantages:

    1) The Company is a separate legal entity from the people who have set up the trust. There are a number of consequences which flow from this basic fact. One is that it creates another "layer" of protection if the "real" people are sued. The legal owner of the trust assets is the company, not the person. A key principle in asset protection is to create a separation between a person and the ownership of their assets.

    2) There's lots of neat tax tricks which come about because there's a new artificial person in your life... :D for example, double dipping (quite legitimately) on buying the directors a laptop, paying the directors tax free living away from home meal and accommodation allowances when travelling on trust business...

    3) Companies are immortal, people aren't. This has some real practial administrative advantages in that you don't need to change trustees on the death of one or more of the trustees. Where the trustee owns real property this is an advantage as you need to lodge forms with the relevant state/territory land titles registry to change trustees. That's not necessary if there's a corporate trustee, you just appoint new directors and notify ASIC of the appointment.

    Disadvantages

    1) Cost. It will cost you about $1k to set up a company ($800 of this goes to ASIC in fees) and $212 per year to keep it registered.

    2) Your accounting fees will go up. Whilst there will need to be a tax return for the trust regardless of whether a natural person or a company is the trustee, you'll have to pay your accountant some more to tell you all the great tax tricks (see advantage two above). Generally you wouldn't need a separate company return if all the corporate trustee does is act as trustee - just a trust tax return.

    Anyone think of some more?
     
  4. johnnyb

    johnnyb Well-Known Member

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    Sorry, I can't add any more pros and cons as I'm just learning as well - but I do have a (related) question.

    Nigel, on your advantage 2, I will be travelling (a plane trip) to see my financial advisor in the near future. This will be to discuss our whole plan which includes a discretionary trust (of which my wife and I are trustees) and a HDT with a company trustee. Can the company pay for the travel expenses even though the purpose of the trip is not solely for the company or HDT?

    Also, can we change the trustee of the discretionary trust to be the company we have already set up for the HDT trustee, or do we need a separate company?

    John.
     
  5. NickM

    NickM Co-founder Staff Member

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    Hi John
    Financial Planning review fees are tax deductible whereas an initial plan is not.

    If the investments are through the trust, then the trust can (and should) pay.

    You can change the trustee.
    In NSW this can be done with a deed of change of trustee which needs to be stamped. The cost of stamping is $12 + the legal fees to prepare the document.

    NickM
     
  6. johnnyb

    johnnyb Well-Known Member

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    Thanks for the info Nick. The trip to the financial planner was for initial discussions, so there is no invoice for the visit. All I have is the invoice from Virgin for my flights (and a taxi receipt). Can I just create a minute for the trust noting that as trustee I had to travel on trust business (investment planning), and in my trust accounts put an entry for reimbursement of the trustee for travel costs?

    John.
     
  7. NickM

    NickM Co-founder Staff Member

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    Hi JOhn
    Provided that your trust is a current active investor - then i would think you would be OK to claim the travel costs. all part of doing business.

    Happy Investing ! :D
    NickM
     
  8. johnnyb

    johnnyb Well-Known Member

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    Thanks for the info Nick.

    Gotta love this forum. :D
     
  9. Rolf Latham

    Rolf Latham Well-Known Member

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    Hiya

    Copr trustee can make it hard to get 95 % IO lends.

    90 % is generally what most lenders will wear, though you can sneak them thrugh better now than a year ago since people like STG now als have 95 % IO lends. Until about a year ago it was really only ANZ and Bankwest that would do the combo.

    ta
    rolf
     
  10. Nigel Ward

    Nigel Ward Team InvestEd

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    That's some good intel. Thanks Rolf.
     
  11. micksteffan

    micksteffan New Member

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    Ill give it a try

    Hi Guys, got another advantage... I think

    As company acting as trustee you should be able to add new shareholders to that company acting as trustee, or have more than one person as share holder of the company acting as trustee. this would be hard to do if an individual person would be the trustee. In that way you might be able to reduce/avoid any CGT consequences... as the assets are held in the trust and not the company acting as trustee.

    For example you would like your son or daughter to take over at a later stage. Simply issue or sell some shares to them in the company acting as the trust.

    Am I right?
     
  12. NickM

    NickM Co-founder Staff Member

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    Hi Mick
    If you change directors & shareholders of a trustee coy - no cgt impact
    If you change the actual individual trustee and add another individual or change the individual - there SHOULD be no CGT event as the beneficial owner is still the trust, The legal owner has changed on title

    The biggest obstacle is changing records at Land titles etc and trying to get OSR to acknowledge the change without charging you duty.

    hence we rarely will set up a trust these days with individual trustees for this very reason.

    Furthermore, control of the trustee company is one aspect but if you ahve a disc trust then you must also look at the deed and consider the role of teh Appointor. They generally have ultimate control of the trust.
    Be wary that any changes to the deed eg appointor, principal beneficiaries etc, may trigger a resettlement of the deed, so as always seek professional advice before proceeding with any of these types of changes.

    hope this helps
    Cheers
    NickM
     
  13. Terryw

    Terryw Well-Known Member

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    Hi

    There are many excellent replies above. I can think of one more benefit to having a corporate trustee, and this concerns loans.

    Imagine if you are trustee and then suffer a credit default or a judgment etc. You may have a hard time getting a loan. Now imagine if the company was trustee and you were director - you still could not get a loan but you could if you resigned as director and appointed someone else. There would be no need to try to change legal ownership which is what you would need to do to change personal trustees.
     
  14. Terryw

    Terryw Well-Known Member

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    Mick, this would work if the person is a beneficiary of the trust already. A daughter probably would be but an outsider may not. The outsider could still control the trust - but may not be able to distribute to themselves. But there may be ways around this too.