TRUST FAQs
Who should be the appointor?
The appointor (sometimes called Principal or Guardian) is the ultimate controller of a trust. They have the power to appoint and/or remove the trustees. It is not essential that the trust has an appointor. CGW deeds will work with or without an appointor.
However, it is desirable to have an appointor to provide for situations such as the death or insolvency of a trustee. The appointor may be an existing trustee, a named beneficiary or a third party.
Some trusts include an "independent" appointor (such as the accountant) to reduce the risk of individual beneficiaries being held to control the trust.
How many Trustees should I have?
We recommend against having a sole individual trustee who is also a beneficiary.
There is an argument that, where a sole trustee is also a beneficiary, all of the net income is assessable to that trustee because they have the unilateral power to retain or distribute to other beneficiaries.
While we are only aware of one occasion where the ATO has raised this as a possible issue, the prudent approach, if the clients do not want a corporate trustee, is to have joint trustees. If there are joint trustees then no beneficiary has unilateral power to determine how the income is distributed.
The maximum number of trustees you can have is four.
Should I have a corporate or individual trustee?
A trustee is personally liable for debts incurred on behalf of the trust and, although the trustee has the right to be indemnified out of the assets of the trust, it is usually preferable for a sole purpose company to be trustee so that the risk of trust activities is quarantined to the assets in the trust.
With individual trustees, all assets have to be transferred into the name of new trustee if a current trustee resigns or dies. However if a company is a trustee, there is no need to transfer assets if a director dies or resigns.
The costs associated with having a company as a trustee are not material.
The directors of a trustee company can be beneficiaries in their individual capacity whilst still being in control of the trust.
Does my trust deed need to be stamped?
Generally a trust deed will be subject to either nil or nominal duty. The requirements in relation to stamping a trust deed (including a deed establishing a superannuation fund) vary from state to state. The stamping fees for discretionary and unit trusts and superannuation funds in different states and territories are set out in the following table:
| State | Discretionary Trusts, Unit Trusts and Superannuation Funds |
| QLD | Nil (if by declaration or settlement of cash only) |
| NSW | $500 |
| ACT | Nil (if by declaration or settlement of cash only) |
| VIC | $200 |
| SA | Nil |
| TAS | $20 for the deed, no fee for additional copies |
| WA | Nil |
Do I need a fixed or non-fixed unit trust?
There are a number of issues you should take into account in choosing between a fixed and non-fixed unit trust. The key differences are summarised below:
| Fixed Unit Trust | Non-Fixed Unit Trust | |
| Can the trustee issue ordinary units? | Yes | Yes |
| Can the trustee issue discretionary income units? | No | Yes |
| Do the unitholders get the benefit of franking credits if the trustee receives a franked dividend? | Yes | No* |
| Does the trust satisfy the continuity of ownership test where it holds shares in a company with losses? | Yes | No* |
| Can the trustee issue partly paid units? | No | Yes |
| Can the trustee: • gift income from the trust? • mix and invest trust monies and asset of the trust with other trust funds? |
No No |
Yes Yes |
Recent cases also highlight the fact that most private unit trusts do not meet the current criteria for a fixed trust - therefore if you have an existing unit trust deed, you may need ensure it is updated if you require the trust to be fixed.
A fixed trust is more restrictive than our ordinary unit trust which may be a problem if there are non-arms length unitholders.
For example, many decisions have to be approved by a unanimous resolution of unitholders (e.g. amendments to the trust deed)”.
Recent casesalso indicatethat, unless unit redemptions and issues have to be based on a valuation determined on a net asset basis and in accordance with Australian accounting principles, the unitholders may not have a fixed entitlement.
While we do not agree the recent case law, it is likely the ATO will seek to take this valuattion position and therefore the safest option is to include these valuation methodologies in the unit trust deed – but this will not be appropriate in many cases.
However, the deed can be amended in future (by unanimous consent) if an alternative valuation method is agreed.
Should I get a direct descendants trust?
A direct descendants trust deed contains provisions which prohibit capital distributions to anyone other than a direct descendant of the initial clients unless the initial clients consent.
This deed may be attractive to clients who have concerns about sons or daughters in law or other third parties (e.g. trustee in bankruptcy) accessing the trust capital.
However, the trust has the usual wide range of income beneficiaries so the clients still have substantial flexibility for tax planning purposes.
COMPANY FAQs
Who should be the director / secretary?
A proprietary company must have at least one director who ordinarily resides in Australia. Only an individual who is at least 18 may be appointed as a director of a company.
A proprietary company is not required to have a secretary but if they do have one or more secretaries, one of them must also ordinarily reside in Australia. Only an individual who is at least 18 may be appointed as a secretary.
If only one director is appointed, CGW Structures recommends that person should also act as the company secretary. This is so that the signing procedure in 127(1) of the Corporations Act can be relied on. This is usually a requirement of most banks and financial institutions.
Does a company need a public officer?
Australian taxation law requires every company carrying on business in Australia, or deriving income from property in Australia to be represented by a public officer.
The company must notify the Australian Taxation Office of the identity of its public officer within three months of commencing business or deriving income in Australia. The public officer is the Australian Taxation Office's official point-of-contact in relation to the company.
Only an individual who is at least 18 years old and generally resides in Australia can be appointed as a public officer.
What classes of shares should be issued?
Shares do not have "standard" rights.
Different rights attach to different classes of shares and these rights may also be different to the rights attaching to the same class of shares in another company.
The rights attaching to the different classes of shares are set out in a company’s constitution.
Clients will need to consider what rights they intend the proposed shareholders to have and the tax implications of issuing more than one class of shares.
SELF MANAGED SUPERANNUATION FUNDS FAQs
Who should be the trustees and members of Self Managed Superannuation Fund?
There are certain rules on who can be trustees and members of self managed superannuation funds.
These rules must be satisfied in order to comply with the superannuation legislation.
Single member funds
- If there is a corporate trustee the member must be:
- the sole director; or
- one of two directors and the other director must be a relative of the member; or
- one of two directors and the member must not be an employee of the other director.
- If the fund has individual trustees the member must be one of the trustees and the other member must be a relative and must not be an employee of the member.
Two to Four Member Funds
If you have two to four members, you must ensure that:
- if there is a corporate trustee - each director of the corporate trustee is a member of the fund;
- if there are individual trustees - each individual trustee is a member of the fund; and
- no member of the fund is an employee of another member of the fund unless the members are related.
There are exceptions to these rules that apply in limited situations.
Should I have corporate or individual trustee for my self managed superannuation fund?
Generally the reason why clients might not have a corporate trustee is because they want to avoid the cost of setting up a company (which is usually around $734). However, there are a number of benefits of having a corporate trustee.
Provided the sole purpose of the company is to act as the trustee of a superannuation fund, there is a reduced annual fee with ASIC of $41.
Some of the benefits of having the corporate trustee are as follows:
- It is clear that the interests of the superannuation fund are separate to the individual members because the legal title to the assets is held by the company.
Having a company as trustee can help if there is a claim against the individuals because it is easier to prove that the assets are held for the superannuation fund.
This can be particularly useful in states like New South Wales where you cannot disclose a trust on the title to land. - If a company is a trustee of a sole member fund the member can also be the sole director. This means there is no need for a second person to sign documents, and can significantly reduce issues in your estate planning.
- Having a corporate trustee allows a smoother transition on the death of a member. If there are individual trustees, on the death or retirement of a trustee, you need to transfer all assets of the fund to the new trustees.
With significant share investments, this can be a very time consuming process.
If there is a corporate trustee, there is no need to change title to the assets.
