How to set up a Family Trust?

Discussion in 'Accounting & Tax' started by pinkmoon__, 3rd May, 2009.

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  1. pinkmoon__

    pinkmoon__ New Member

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    Hi, does anyone know where to start? Would be nice if someone can tell me the steps. I have alot of questions to ask.

    Where to register the trust? Also, i want to ask is it necessary to incorporated your business to make it a trustee for your trust? or can a sole trader business be be a trustee?

    Thanks guys, just wanting to know more before i see my accountant.
     
  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    The answers do depend a bit on what your reasons for wanting a trust are.

    What is your goal for the trust?

    What type of assets will the trust hold?

    It's a pretty straight forward process for your accountant to set up a trust for you - the important thing is to get the structure right and to make sure you have a trust deed that gives you the flexibility you need.
     
  3. pinkmoon__

    pinkmoon__ New Member

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    the main goal is stream income and transfer my assets to my kids in in the future
     
  4. Simon Hampel

    Simon Hampel Founder Staff Member

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    To maximise asset protection, it is strongly recommended that you use a corporate trustee for your trust. The company used should not be a trading entity (ie it should not carry on a business in any form - solely run as a trustee).

    I don't think a sole trader business can be a trustee - it would either need to be you personally or a corporate entity ... but as per my comments above - you don't want a trading company being a trustee anyway ... it adds too much risk.

    Your accountant will do the following things for you:

    1. set up a Pty Ltd company for your trustee with you as shareholders and directors
    2. register a trust with the company as trustee (and pay stamp duty)
    3. apply for ABNs and TFNs for the trustee and trust

    ... and then you need to set up a bank account for the trustee

    If your trust name is MyTrust and your trustee name is MyTrustee Pty Ltd, then your bank account would be in the name of "MyTrustee Pty Ltd As Trustee For MyTrust". All transactions done by the trust should go via that bank account to give a clear paper-trail for future reference. Eg. if using some of your own money to buy an asset in the trust, transfer the cash to the trustee bank account first and then buy the asset from there. You would also need to sort out with your accountant whether money you put into the trust will be a gift or a loan (and if a loan, how it will be documented).

    You should never mix personal and trust finances - always make sure there is a clear paper trail that shows where the money came from and where it went. This should help to avoid any question in the future as to whether an asset was actually held by the trust or not.

    Naturally you need to verify all of this with your accountant - I'm not an accountant myself, I'm only going by what my accountant did when I set up my trust (this was quite a while ago, so I may have missed some details).

    One other thing you need to consider is whether a trust is actually necessary. Trusts can be a bit expensive to operate - especially if you only have a few assets. Of course you do need to start somewhere - and tranferring assets to a trust down the track can add additional costs (stamp duty etc), so if you are going to use a trust, the earlier you start the better. But unless you are planning on buying more than one or two houses or a few shares - then it may not be worthwhile.

    Also remember that a discretionary trust does not get any negative gearing benefits - income losses are carried forward to be offset against future profits, you don't get to offset these losses against other PAYG income like you do for assets held in your own name.

    Some type of hybrid discretionary trust may help if negative gearing benefits are important to you - but they can add a lot of complexity, and a degree of uncertainty relating to how the ATO will treat them - caution is required ... and a specialised accountant ... and not all HDT deeds are made equal, so who you use to set up your HDT is important.
     
  5. Saskatoon

    Saskatoon Well-Known Member

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    Pinkmoon,
    if you haven't done so borrow or buy a copy of Nick Renton's book "Family Trusts". It gives a good explanation, and will help in your discussions with accountants and financial planners.
     
  6. Joe Stevens

    Joe Stevens New Member

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    You can also set up a Family Trust (Discretionary Trust) directly yourself if you are confident you've done all the correct due diligence at to the structure. Setting up a trust via intermediaries (lawyers, accountant, financial planners) can cost 3-5+ times the cost of doing it yourself, the trust setup process is quite simple if you have all the info. There are various online platforms that you can use, where they can also help guide the trust set up process.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Avoid an accountant!

    Discretionary trusts are legal relationships and should only be set up by a lawyer. Accountants are not legally permitted to set them up - despite this many do. Accountants can advise on the commonwealth tax aspects only.

    You can use an online platform, but you will not get the ability to tailor the deed, or even see it before signing. Later amending the trust will cost a fair bit in legal advice and drafting.

    The steps are
    1. establish the trustee first. Get advice on who should be the trustee - which might be a person or a company. If a company you need to consider the effects and consequences of who should be the shareholders and who should be the directors.

    2. Prepare a deed a finalise it. Consider how you would pass control of the trust - do this before finalising it. Hint - it won't work well if you have 2 kids.

    3. Have the settlor provide the trustee with the initial property.

    4. Settlor and trustee should Execute the deed, but beware of the stamp duty consequences before you do this.

    5. Set up bank accounts in the name of the trustee

    6. apply for a TFN, possibly an ABN and maybe even GST

    7. Consider how the trustee should get more money to do what they have to do

    8. someone should either lend or gift money to the trustee. You should get legal advice on who this should be and how it should be done and documented - it might be a loan at no interest or a market rates.

    9. Trustee invests

    10 trust does tax returns, but the trustee will need to make the beneficiaries presently entitled to income before 30th June each year.