Please advise how beneficiary loan accounts work in a trust.
How is a beneficiary loan a accounts receivable under assets and how a beneficiary loan can be as a unsecured loan under liabilities.
Thanks.
I think it may be money owed by the trustee for distributions which may not have actually been paid. eg. some people as trustees, just say they have distributed money to a child (to save tax) but retain the funds. Theoretically the money is still owed to the beneficiary, but another argument is that the money has been expended on the child in living expenses. I suppose it depends on how is it setup and who the beneficiary is.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
If the money is owed to the child then it is a liability, which is an accounts payable.
Let's say it's your trust, and you are the beneficiary….
A beneficiary loan under accounts receivable would be funds that the trust has 'lent' to you, but expects to get back (receivable). If the trust had a lot of cash, and you needed some, then the trust could lend you money, but it must be a written agreement at commercial interest rates as I understand it to keep the ATO happy. Still, you are better paying interest to yourself than to a bank, right?
A beneficiary loan under liabilities is money that the trust owes YOU. E.g. the trust finances a property using bank funds – but needs the 30% deposit. You provide funds from personal savings/home equity etc to lend the 30% deposit to the trust. The trust owes the 30% to you and the 70% to the bank. Both are liabilities. You don't have to charge the trust interest in this situation, but obviously you don't pay tax on that 30% when you get it back either.
It is an unsecured loan because the trust has offered no security (mortgage/title) to you over the loan.
So it's an asset (accounts receivable) or a liability depending on who owes who the money.
Daedalus
This article may be of interest
Re-imbursement red lights
Tax Telegraph issue #16 by Deloittshttp://www.deloitte.com/dtt/article/0,1002,sid=142634&cid=222779,00.html
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Good information, thanks Terry.
Daedalus.
Be careful with beneficiary "loan" accounts.
There is a legal difference between "unpaid beneficiary entitlement" and "beneficiary loan account". Your accounts should make this differentiation for tax purposes, especially when a corporate beneficiary is used.
In terms of the "beneficiary loan account", it is really just a "current account" where if a beneficiary owes the trust, it's an asset in the trust's Balance Sheet. If the trust owes the beneficiary monies, it is a liability .
Eddie
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