Hey Guys, After information regarding the use of trusts: 1-If I establish a trust am I able to pick/change beneficiaries further down the track? 2-What happens if the trust makes a loss? 3-Who does a family trust encompass? 4-If I want other investors to contribute capital to a trust I control, how would this happen? 5-If the trust has a company as trustee can that company be a beneficiary? Thanks in advance. Nathan
It depends on how your trust deed is written. Not all deeds are made equal and your deed needs to be flexible enough to be able to add beneficiaries, otherwise you can't do it without re-settling the trust, which can be very costly. Make sure you let your trust advisor know that you need this flexibility. I believe there may be some gotchas these days with choosing trust beneficiaries - so good advice is definitely required. The loss is quarantined within the trust and will be carried forward to future years to offset future income. You can't negatively gear the assets held within a trust. However, there are some trust structures (known as hybrid discretionary trusts), which do allow you to effectively negatively gear investments - however, these are complicated beasts and the ATO has recently taken a firm stand against some of the structures being used. There are very few HDTs which I'm aware of which give you the benefit of negative gearing, so caution is required. One of our resident accountants might be able to add more detail here, but from my understanding, there is no such beast as a "family" trust - it's just the way the trust deed is worded which allows family members to be beneficiaries of a trust. They are all "discretionary" trusts - meaning that it is at the discretion of the trustee as to which beneficiaries get which distributions from the trust. I think many people use the terms "family trust" and "discretionary trust" interchangeably. Having a quick look at our trust deed, it says the beneficiaries of our trust include: "the parents grandparents brothers sisters spouses widows widowers children grandchildren uncles aunts and cousins of the Specified Beneficiary and the spouses widows widowers children and grandchildren of such brothers and sisters children grandchildren uncles aunts and cousins" ... alternatively, your trust deed might be restricted to you, your spouse and your direct descendants. Our deed also has a clause specifying that "child" or "children" includes any adopted children and step-children. It's important that the deed is specific and not open to dispute! Specialist advice required here, but personally, I wouldn't be using a discretionary trust where there are multiple "investors", a company structure or a unit trust is a more appropriate vehicle where the investors have some rights to the proceeds from the investments. If you have more than 20 investors, you need to issue a PDS and go through ASIC. I don't think so - not sure. You generally wouldn't want to anyway. A corporate trustee is used as an asset protection mechanism - the company used should be a "shell" with no assets and is considered effectively disposable (ie can be replaced by another company if necessary). You don't want the trustee to be able to be sued or for you to lose effective control over the trustee and the trust.
Here is my take. 1. Adding or removing beneficiaries can result in a resettlement of the trust (discretionary) with CGT and stamp duty implications. But the class of eligible beneficiaries can be wide so as to be able to include a large group of people by default. 2. Complex tax issues. There are certain requirements to be met for the loss to be carried forward. Family Trust Elections etc. There are also complex rules to prevent the trading in losses. 3. Encompasses a whole host of legal obligations duties and rights. Trustees have legal and common law duties such as acting in the best interests of the beneficiaries. Beneficiaries also have rights such as the right to be considered for a distribution. 4. Yes, but probably not a good idea. In NSW this could trigger stamp duty on the changing of trustee for example.
Thanks for the replies. Further to Q2: So say I want a trust structure due to gennerational hand me down, asset protection, and tax minimisation but the first few houses I intend on investing in would not have a positive return, how would the account balance be kept in the black? Would it involve me supplementing it from my pay? Making out loans to the turst? And Q3: Due to my circumstances I would like to have other investors contribute capital whilst being able to distribute income as I please, so what would be the kind of setup to achieve this? Once again, thanks in advance.
2. If the trust was making a loss then someone would either a. gift funds to it b. loan funds to it 3. You could use a) company b) unit trust c) discretionary trust. A company would not be suitable if investing in property. A unit trust would provide fixed entitlements A discretionary trust may not be acceptable to investors as there is no requirement for the trustee to distribute to them. You also need to consider a) borrowings and guarantees of loans b) stamp duty c) CGT
