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Settlors Settlement Sum

Discussion in 'Accounting, Tax & Legal' started by jrc77, 7th Mar, 2009.

  1. jrc77

    jrc77 Well-Known Member

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    In practice, is the settlors "gift" (when creating a discretionary trust) important? Although the trust deed says the settlor has paid the trustee the sum of $10 does this actually usually happen in practice and what are the consequences if the settlor never actually gives the trustee the $10?

    For example, should I ensure that after bank accounts are open the first deposit in it is $10 coming from the settlor just to ensure legally everything is kosher?

    Or doesn't it matter in practice?

    Regards,

    Jason
     
    Last edited by a moderator: 7th Mar, 2009
  2. Rob G.

    Rob G. Well-Known Member

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    No gift = no trust !!

    $10 is a bit token these days, it originated from trust law custom 100 years ago.

    If you open an account for the "gift" and it gets eroded by fees to zero then the ATO could argue the trust has ceased. Similarly if it is mingled with other trust money and perhaps gets drawn down.

    In fact, if you put your $10 in the bank and then take it out again it might be considered to be a different physical $10 from the original and so is lost.

    Most people staple the sum to the deed and file it safely.

    Note it is important who the Settlor is and their relation to the family as well.

    You really need to see a Legal Advisor on the best way to establish the Trust. All the details matter.

    Pro forma DIY deeds purchased with a sheet of instructions can be a legal minefield for those unskilled.

    Cheers,

    Rob
     
  3. NickM

    NickM Co-founder Staff Member

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    Rob is correct.
    In Practice we recommend that a friend usually act as the settlor and that the settled sum be stapled to the deed.

    The bank account strategy used to be the one used for many many years and was usually quite acceptable until our dear banks decided that fees should be charged on most accounts.

    A $10 cheque doesnt really work as it could go stale or the acct could get cloased

    The cash is the safest and best option
    Nickm
     
  4. RobertHolmes

    RobertHolmes Member

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    Rob, can you please elaborate on "Pro forma DIY deeds purchased with a sheet of instructions can be a legal minefield for those unskilled."? Perhaps this is worthy of its own thread?

    Cheers Robert
     
  5. Rob G.

    Rob G. Well-Known Member

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    Such a thread would degenerate as people get agitated when they feel threatened.

    Look at the flak Julia received on Somersoft over her opinion about HDTs - shoot the messenger.

    Cheers,

    Rob
     
  6. Nigel Ward

    Nigel Ward Team InvestEd

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    Rob G and NickM are, of course, correct.

    The technical reason (feel free to glaze over now :rolleyes:) is that some trust property is an essential element of creation of the relationship which comprises a trust.

    You need:

    1) one or more trustees (who owe obligations)
    2) one or more beneficiaries (to whom the obligations are owed)
    3) trust property (in respect of which the trustee/s owe the obligations to the beneficiaries).

    Now of course it's all more complicated than that as you can get into issues about future equitable property...but for present purposes, staple $10 to the trust deed as a true gift from a friend. (maybe you buy them a coffee and a muffin or a beer the day after...)

    You could of course try stapling a $2 coin to the deed - but that's a bit harder! :D
     
  7. jrc77

    jrc77 Well-Known Member

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    Thanks all for your contributions!

    Regards,

    Jason
     
  8. RobertHolmes

    RobertHolmes Member

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    Insolvency due to Stamp Duty?

    All,

    I have seen advice that (in NSW) the settled sum should be $550, sufficient to cover the $500 stamp duty levied. What does the forum think of this advice?

    Cheers

    Robert