Is it possible to have a trust and yourself as trustee, to purchase a property under and then change the trustee to a company?
Who is effectively on the title deed? The trust or the trustee?
SebastianaussiemikeParticipant@aussiemikeJoin Date: 2004Post Count: 66
If you purchase the property in your name then you will be on title deeds and any trasfer will result in stamp duty being payable.
It will also trigger a CGT event but given that you would probably transfer the asset for the same price then this would not be an issue.
However stamp duty will be payable on the transfer. Make sure you get the structure right in the beginning otherwise there can be enormous tax issues later on.TerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
Aussie mike, are you sure about this. I have asked Trust guru Dale GG about this in the past and he seemed to think it could be done without paying stamp duty and was a matter of filling in some forms indicating a change of trustee.
Sebastian, it may also trigger a CGT event if there is a change in beneficiaries etc so it is best to get some advice.
The loans will also be affected and it would probably be like a refinance.
Having said this, I have never done it nor seen anyone change trustees.
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[email protected]aussiemikeParticipant@aussiemikeJoin Date: 2004Post Count: 66
One of the risk areas in adding a corporate beneficiary is triggering a resettlement. If the coroporate beneficiary is already named as a beneficary under the trust deed, then clearly there is no resettlement issue to consider. However, it is not so obvious where the company must be nominated or the trust deed altered.
Generally the ATO will accept that a nomination of an additional beneficiary does not result in a resettlement where BOTH of the following conditions are satisfied:-
1. The nomination is pursuant to an already existing power to nominate new beneficiaries which is only exercisable under the terms of the trust in favour of a clearly defined group which it could be reasonable inferred that the trust was intended to benefit; AND
2. It can be shown from the deed and surrounding circumstances that the actual objective, purpose or theme of the trust was to benefit that wider group which includes the nominated beneficiary or beneficiaries.
A greater risk arises where the terms of the trust deed are required to be amended.
If the addition of the beneficiary is as a mere income beneficary then there will be no resettlement issues. However if the addition of the company as a capital or default beneficiary then there are possible resettlement issues.
If a company is to be added as a beneficiary. where possible, it should be nominated as an income beneficiary only.
If the trust deed must be amended then the amendment should only allow the trustee to nominate the company as as income beneficiary, and not as a capital or default beneficiary.
All of the shareholders of the company should be primary beneficiaries or members of their family. Thus the distribution of income to the company will only benefit the family which the settlor intended to benefit.
Note that if the trust deed does need to be amended then stamp duty implications could arise. Refer to Nichols Cabramatta Wholesale Stationary Supplies Pty Ltd v Commissioner of Stamp Duties (NSW). In that case adding a corporate beneficiary resulted in a stamp duty of $34,000
The trust deed amendment could also constitute a resettlement for CGT purposes.
Also if the trust owns pre CGT assets then Division 149 could be triggered. Also refer to paragraph 8 of IT 2340. If the majority of the company’s shareholders are not trust beneficiaries, the Commissioner may try to apply Division 149.
Also if the corporate beneficiary is incorporated part way during the year then the company can only receive distributions made by the trust on or after the incorporation date.
The tax office may also evalauate the purpose of adding a corporate beneficiary. If the sole and dominant purpose is merely to gain a tax advantage then the Commissioner may elect for Part IVA to apply.
All in all see your accountant and/or lawyer. Lots of people have established trusts without a full understanding of trust and taxation law without understanding the full implications.TerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
I thought we were talking about changing trustees? If the sole director of the trustee company is the previous trustee, then there should not be any change in beneficiaries – alto the new company would itself be a beneficiary.
There are some interesting articles on trusts available at:
Including one on Trust Reseetlements:
with this quote:
Can I appoint a new Trustee for my Family Trust?
Changes made to the Trustee do not by themselves result in the ATO deeming a new Trust has been created. However if, in addition to a change in the Trustee, other fundamental changes to the Trust have been made that alter the nature and character of the Trust relationship between the Trustee and the beneficiaries then the ATO will deem that a new Trust has been created.
Well worth a read. And Sebastian check with someone before you change trustees!
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[email protected]GreatPigMember@greatpigJoin Date: 2004Post Count: 284agent smithParticipant@agent-smithJoin Date: 2003Post Count: 22
Sebatian let me get this straight……
You have a property purchased through a trust.
You are the trustee.
Unless you transfer ownership of the property from the trust to you ( incurring SD) the trust will always be on the title.
As I understand it the trust deed will spell out the procedures for appointing trustees. This power is vested in the appointer.. which would probably be you if you are the sole trustee.It seems like a simple procedue to then retire you as individual trustee and be replaced by a corporate trustee.
It may be more complicated as I have not done this myself……but hey there’s my 2 cents….[hmmm]
I am not talking about adding or changing beneficiaries as I know this will lead to resettlement of the trust and hence CGT and stamp duty events taking place.
Thanks for the links, I will look into them once I have some more time.
I have not purchased any property as such, just exploring an avenue more than anything else.
How about this ppl.
Have a unit trust as myself and a unrelated partner as 50/50 beneficiaries and also joint trustees (I know this is not ideal situation). We are both appointors of the trustees also.
I think what is at question is what is on the title deed of the property? If the trust then it should not be a problem in firing the trustee(s) and appointing a new corporate trustee, because the name on title deed of the property does not change, but if the trustee is on the title deed of the property then I imagine it would trigger CGT and SD events as that name will effectively change.
But it is the trusts name on the title deed is it not? I think I have answered my own question!
Don’t mind my ramblings!
Sebastian, sorry, Nope!!
The trust is not on the title – trusts cannot own anything in their own right. The trustee will be on title – as it is holding the assets ‘in trust’ for the beneficiaries.
However, changing trustee should not cause CGT or SD, as the beneficial ownership of the asset has not changed…
Seek legal/taxation advice…
Sorry to jump in and ask you a side step question about trust.
My question is about the following paragraph and asset protection. [withstupid]
“The trust is not on the title – trusts cannot own anything in their own right. The trustee will be on title – as it is holding the assets ‘in trust’ for the beneficiaries.”
If trust is not on the title and cannot own anything in their own right and the trustee will be on the title and holding the assests in trust for the beneficicaries, if some one sues the trustee, will the assets in trust still be protected. [confused2]
(I asked about asset protection in other thread before and I would like you to clarify this point for me please.)[confused2]
I appreciate your reply as always.[exhappy]
Thanks for that…. but then that of course leads me to the same question breakfree has posed.
This is not something I am toying with just exploring avenues and creating discussion…. of course always seek professional advice prior to taking action!
Thanks Again… I, as breakfree look forward to your response!
SebGreatPigMember@greatpigJoin Date: 2004Post Count: 284Originally posted by breakfree:
if some one sues the trustee, will the assets in trust still be protected.
From my understanding, in that situation the appointer can sack the trustee and appoint another one.
But I believe there are situations where the directors of the trustee company may also be liable, in which case you wouldn’t want them as shareholders of the new trustee company.
This is just based on what I’ve read, so get advice from a good lawyer to be sure.
A trust is not a separate legal entity, unlike a company – which is like a person, without a soul (or something like that[biggrin]). So the trustee will hold the assets ‘in trust for’ the beneficiaries of the trust. I suppose it’s simpler to ‘set up’ a trust for legal/tax purposes rather than to list the whole plethora of beneficiaries etc.
Basically, your asset protection is still there, in that the trustee is not the owner of the assets either, but is rather looking after the assets for the beneficiaries listed in the trust deed.
As GP said, if the trustee is sued personally, it should be easy to prove that they do not own the trusts assets, and therefore they are not available to the litigant. But, you can also sack the existing trustee, and appoint another one, so it becomes even less of an issue.
If the trustee is sued ‘as trustee’ of the trust, then I believe it’s more difficult, and you would definitely need to seek legal advice.
Thanks very much for the answer. [exhappy]. I still need to learn a lot more about trust to know the exact outcome before I jump into it.[confused2][happy3]
Breakfree for an excellent starting point grab Trust Magic by Dale Gatherum Goss (www.gatherumgoss.com). If you have further questions he lists his email, and I believe he is prompt in his replies.
Also as mentioned, he is a moderator at somersoft, so you could ask the question there, and probably get a number of answers from the experienced guys over there…..
Thanks heaps for pointing me to somersoft forum.[exhappy] I will have a look for more answers there.[happy3]
I have already got the book “Trust magic” which you refered to me in a another post. It is a really good book and answers a lot of my queries. However the more I read about trust on this forum, the more I know that my knowledge about trust is still limited and with the new bill of changing trust rules from this government. I am still not sure about what I should do with setting up a trust.[confused2]
Breakfree, if you are not sure, I would make an appointment to see Dale, or any trust savvy accountant and go through everything with them.
Regarding changing legislation – it’s been ‘on the cards’ for years now, and hasn’t happened. Odds on that politicians have their assets in trusts, and so they ain’t going to change the rules to upset the apple cart in any hurry!!