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DIY Estate Planning

Discussion in 'Accounting, Tax & Legal' started by jninguem, 25th May, 2013.

  1. jninguem

    jninguem New Member

    24th May, 2013
    Sydney, NSW

    This is my first post here so please be kind! :)


    My dad has recently died and left behind 3 heirs (mom, brother and myself) and one PPOR. My mom lost her love for this property ages ago and now is looking to sell as soon as possible and to buy something smaller.

    Given her age and the fact she will have to limited retirement savings, my brother and I are looking to lend/gift our parts of the PPOR, allowing her to buy an IP she can rent out.

    It may worth to note that out of respect for my mom's risk averse nature, we will are not initially looking on borrowing to invest.

    The challenge:

    Both my brother and I work in very mobile careers and sometime find ourselves in jurisdictions where inheritance/estate taxes are still the norm (e.g. France, Brazil). Consequently we are considering optimising this purchase by purchasing the property inside of a trust.

    However, since we both have kids under 18 and wives on lower tax brackets, I'm also looking for the long term implications setting up the purchase inside of a trust, trying to make sure that in the long run, assets are allocated equally across the two of us, but discretionarily across our wives and descendants.

    Possible solution 1

    Setting up a unit trust, with at least two mains classes of units: 100 Capital Entitled and 100 Distribution Entitled. My mom would hold all the income entitled units, giving her access to the rent produced by the IP, while my brother and I would hold equal parts of the capital entitled units.

    Issue with solution 1

    Once my mother passes away income would be equally split among the two siblings, however, since this is a Unit trust, the ability of assigning the income to lower income earners would be lost or complicated by the non discretionary nature of the trust.

    There also the issue of asset protection and the fact unit holders may be forced to liquidate their holdings.

    Possible solution 2

    In order to re-establish the desired capability of discretionary income distribution my brother and I would establish a discretionary family trust each

    My trust beneficiaries would include my mom, myself, wife and descendants, my brother's beneficiaries would include mom, himself, wife and descendants.

    We would gift 50% of all units(capital and income) of the original unit trust to our respective discretionary trusts and use them to redirect income to my mother.

    Issue with solution 2

    I have a strong suspicion this approach would not be tax efficient, nor fully sure law allows a unit trust to hold a discretionary family trust as beneficiary, and that in some cases is necessary to have a trust company to hold the original units. Is that correct? Is there any other cost efficient approach to this?

    I thank you in advance
  2. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    This is a highly complex area and you really should seek legal advice. There are many other issues which you need to consider, some of which are
    1. Social Security issues
    2. Stamp duty on the transfer
    3. Land tax

    If the estate has not been finalised then there may be other options to save you some money. Other options as well include a post death testamentary trust under s102AG ITAA 1936. This may or may not provide some benefits.

    To answer your question about the units. A discretionary trust can own the units in a unit trust, or 2 separate discretionary trusts etc. A company as trustee is a very good idea for several reasons too.

    One other point is The unit holders and the trustee cannot be the same person as there would be no trust if this happened.