Trading Trust taints Family Trust if beneficiary

[moovet]

Two nights ago I was at our monthly Richmastery mentoring meeting and a line in our notes stated that if you have your family trust as beneficiary of your trading trust then you will taint the portfolio of your family trust.

My understanding was that there was no tainting between trusts and that was what my accountant said and set up the structures accordingly. He also set up the LAQC as a beneficiary if needed. Would there be tainting of the LAQC if it is beneficiary or if I distribute profits from the trading trust to the LAQC?

Therefore -Who should/shouldn't be the beneficiaries of a trading trust and why/why not?

[xris]

Hello moovet,

Endlessly discussed here - run a search.

My quick comment before painting again is that your accountant's advice is either wrong or at best risky. You will need another trust between your trading trust and your family trust, and you need to be careful about who are the trustees and beneficiaries of those trusts.

Don't forget, there are many poor quality accountants lawyers and RE agents in NZ.

xris

[moovet]

I searched the threads 'endlessly' before posting and because there was still no consensus and a lot of debate, I made my posting. I remember listening to Gilligan Rowe twice through RM who drew their line on the board and showed there was no tainting between a trading trust with a corporate trustee and a family trust. My accountant specialises in property and agreed so this statement about tainting between them was new to me at the mentoring evening especially because it was different to what had previously been recommended by them.

[SuperDad]

Hi Geoff,

I don't have a trading trust, but I do have a "buy and hold" trust. I expect that I will have a TT in the future, and I have often wondered about how they help avoid tainting of one's B+Hs.

One article I have come across which seeks to explain how profits are to be distributed out of a TT is the following:

http://www.alexanderdorrington.co.nz/newsletter/July2005.pdf#search=%22trading%20trust%20beneficiaries%22

As you will see (if you read the article), it recommends distributing profits for a TT to a "family trust" via a corporate beneficiary.

Maybe there are other ways?

Paul.

[Josko]

My quick comment before painting ...

Umm...How big is this place you are painting Xris, it seems like you have been at it for a very long time?

Sorry to deviate from the topic.

[moovet]

Thanx Paul. Good article. Put the jimmys up me till I read about the corporate trustee. Looks like I am fine but I am still unsure why RM turned 180 degrees on the issue.

[krispedersen]

Hi Moovet,

I've had issues with this situation previously. A solicitor had set up my first set of trusts. My family trust had my daughter as the beneficiary, my trading trust had my family trust as the beneficiary. You are not allowed to have a beneficiary of a trading trust that is under 16. My daughter is two years old. By having my family trust as the beneficiary of my trading trust I effectively made my daughter the beneficiary of my trading trust. This could have had tainting implications.

Garth Melville saved my bacon and fixed that one up.

Also the corporate trustee only had me as the director meaning that there was actually no independence and coule be revealed as a sham trust.

Ax Xris stated there are many poor "professionals" in this country. BE CAREFUL WHO YOU USE

Cheers

[GJB68]

Just because there is no independent trustees does not mean it is more likely to be a sham trust.

Quote from Ross Holmes " Past court cases have established that far more trusts with independent trustees have been set aside as invalid or shams than trusts without independent trustees. This occurs because advisors rarely advise trustees of their legal responsibilities and the requirements that must be satisified for decisions of trustees to be valid".

Legally, there is not and never has been a need to appoint independent trustees. A trust with the settlor as the sole trustee or one of the trusteees is legally valid as long as the settlor is not the sole beneficary - Privy Council.

[Richmastery]

Moovet

Hi Moovet,

As you know asset planning is a complex area with new case law being introduced regularly. The Mentoring notes are designed to provide you with the most accurate advice and we do review them regularly.

We are committed to making the Mentoring Programme the best it can be and I would recommend you discuss this matter with your mentor who can check the issues out thoroughly for you and provide a conclusive answer and update the notes if required.

Have a happy property investing day.

[moovet]

Thanx RM. Still awaiting mentor to get back to me on it.

[Ivanhoe]

Two nights ago I was at our monthly Richmastery mentoring meeting and a line in our notes stated that if you have your family trust as beneficiary of your trading trust then you will taint the portfolio of your family trust.

that's why it is advisable to hold "portofolio" in a separate "buy and hold" trust. Family trust is a bad definition in this case, use "Wealth Trust". It's main option is to accumulate "copious" (Chris Ashenden) amount of money and lend it to two other trusts as necessary. And distribute some to you too I guess!
As for "tainting" - there were endless threads on this topic which confirm that these issues should be sorted out by professionals. Garth Melvile is the best person to talk to IMHO.
As for notes - refer to RM disclaimer - It should say something along the lines: "Info is a guidance only, acting on this info without consulting with appropriate professional is silly" - and that's absolutely fair.

[moovet]

Don't worry, this is not a poke at RM or anyone. I am mentioning names because these people I hold in high esteem in this area. I was just wanting to know when things had changed because the structures I had set up were recommended by RM and GRA's as well as my own accountant when I set them up 6 months ago. I was surprised to hear a change in recommendations, that's all and wanted it qualified by a 3rd party. I found some of the forum posts I searched confusing and contradictory.

I find this forum a great way to reassure/challenge some of the professional advice I have received. It has enabled me to make better decisions about who is in my team and not remain a silent bystander. For that I will always be grateful.

[xris]

Here's a question for the trust devotees.

Mum and dad have their two rentals in a trust.

Twenty years later they want to cash up and pay for grandson's education.

Mr taxman says, fine, you take your profit, I'll take 33.00%.

Their neighbours are in an identical situation except that their rentals were owned in their own name. No tax on sale.

What possible advantage did mum and dad have having their rentals in a trust (and paying annual administration fees) for twenty years?

xris

[Ivanhoe]

Mr taxman says, fine, you take your profit, I'll take 33.00%.

there's no capital cains tax in NZ, trust or no trust.

[xris]

there's no capital cains tax in NZ, trust or no trust.

Mum and dad think the 33% tax Mr Taxman wants is on the distrution out of the trust, not on the capital gain at sale.

xris