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Investment in a Trust

Newbie

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Replies 4

Dear community,

 

I have a company and a trust structure as follow:

Company has three shareholders.  The husband, and the wife both own 100 ordinary shares each.  The husband is is also the holder of one class B share on behalf of the trust.

The trust beneficiaries are the wife and the children.

Can the company invest in the trust by lending money to enable the trust to buy property?

What are some of the pros and cons of this investment?

 

Regards, 

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Certified Response

Taxicorn Registered Tax Practitioner

Replies 1

To give you further information 

The company is trading on its own right.

The company is the trustee of the trust.

 

1.  Need to have a separate company as trustee of the trust  -  current trustee company is conflicted, even if trust deed allows loan from trustee.

 

2.  Need to have a lawyer prepare loan agreement  -  and advise on whether a mortgage should be in place.

 

3.  Loan should be compliant with Div 7A  

https://www.williambuck.com/tools/be-advised/be-advised-december-2013/division-7a-4-common-errors/

 

 

The reason they are wanting to purchase the property in the trust setting is for asset protection.

 

1.  C1 lends to (new) C2 as trustee of trust  =  C1 has recoverable debt against trust

2.  If C1 becomes insolvent, then creditors can appoint liquidator  9 or other arrangement)

3.  Liquidator of C1 can recover unpaid loan from trust assets

4.  If C1 becomes insolvent and continues to trade, then directors may be personally liable to C1's creditors

 

If asset protection is their main aim, then they should consult a law firm that has a track record in this area.

 

4 REPLIES 4

Taxicorn Registered Tax Practitioner

Replies 3

I have a company and a trust structure as follow:

Company has three shareholders.  The husband, and the wife both own 100 ordinary shares each.  The husband is is also the holder of one class B share on behalf of the trust.

The trust beneficiaries are the wife and the children.

Can the company invest in the trust by lending money to enable the trust to buy property?

 

Is the company trading in its own right?

 

Is the company the trustee of the trust?

 

What are some of the pros and cons of this investment?

 

Need to be licensed to provide investment advice.

 

For advice on tax issues, you need to be more specific.

e.g. pros and cons will depend on your own aims and objectives.

 

 

Newbie

Replies 2

Hi Bruce,

 

Thank you for your prompt reply.

 

The client will be taking the advice of a licensed adviser for this move.  I asked the question to be better prepared for tax queries therefore.

 

To give you further information 

The company is trading on its own right.

The company is the trustee of the trust.

 

The reason they are wanting to purchase the property in the trust setting is for asset protection.

 

Thank you.

Most helpful response

ATO Certified Response

Taxicorn Registered Tax Practitioner

Replies 1

To give you further information 

The company is trading on its own right.

The company is the trustee of the trust.

 

1.  Need to have a separate company as trustee of the trust  -  current trustee company is conflicted, even if trust deed allows loan from trustee.

 

2.  Need to have a lawyer prepare loan agreement  -  and advise on whether a mortgage should be in place.

 

3.  Loan should be compliant with Div 7A  

https://www.williambuck.com/tools/be-advised/be-advised-december-2013/division-7a-4-common-errors/

 

 

The reason they are wanting to purchase the property in the trust setting is for asset protection.

 

1.  C1 lends to (new) C2 as trustee of trust  =  C1 has recoverable debt against trust

2.  If C1 becomes insolvent, then creditors can appoint liquidator  9 or other arrangement)

3.  Liquidator of C1 can recover unpaid loan from trust assets

4.  If C1 becomes insolvent and continues to trade, then directors may be personally liable to C1's creditors

 

If asset protection is their main aim, then they should consult a law firm that has a track record in this area.

 

Newbie

Replies 0

Got it.  Thank you.