Transfer of Shares to a Trust

[Juicy Guava]

I am a director and shareholder of a QC (formerly LAQC) with my husband and i'm planning a set up a family trust (DIY if possible)... Rather than dismantle the company (and presumably trigger depreciation recovered with IRD) I thought I would transfer the shares of the company to the trust. The trust will have three trustees (my husband and I and an independant). I have learned however that a trust cannot hold shares in a company. How then do I effect the transfer? Also then, reading through other threads, what do people mean when they suggest to someone to put shares of the company into trust?

[spaceman]

Really?????.... a trust can't hold shares in a company????....sounds like foolish jibber jabber to me

Cheers
Spaceman

[jedimaster]

I am a director and shareholder of a QC (formerly LAQC) with my husband and i'm planning a set up a family trust (DIY if possible)... Rather than dismantle the company (and presumably trigger depreciation recovered with IRD) I thought I would transfer the shares of the company to the trust. The trust will have three trustees (my husband and I and an independant). I have learned however that a trust cannot hold shares in a company. How then do I effect the transfer? Also then, reading through other threads, what do people mean when they suggest to someone to put shares of the company into trust?

Hi Juicy

Shares can certainly be held by a Trust. Where there can sometimes be confusion is that the title to property held by a Trust, whether it be the certificate of title to property or the Companies Office register for shares etc will show the individual Trustees.

E.g. you will never see "Juicy Family Trust" on the title to a property. Instead, in your hypothetical scenario, you would have:

Juicy
Hubby of Juicy
Lawyer of Juicy

I hope this makes sense and may explain the comment about shares not being able to be held by a Trust. Whilst this comment is right if read completely literally it is not true in the wider sense.

[jedimaster]

I am a director and shareholder of a QC (formerly LAQC) with my husband and i'm planning a set up a family trust (DIY if possible)... Rather than dismantle the company (and presumably trigger depreciation recovered with IRD) I thought I would transfer the shares of the company to the trust. The trust will have three trustees (my husband and I and an independant). I have learned however that a trust cannot hold shares in a company. How then do I effect the transfer? Also then, reading through other threads, what do people mean when they suggest to someone to put shares of the company into trust?

Also I should add that although we can obviously appreciate the need to keep costs down, I would strongly recommend getting accounting advice before moving the shares in your company. There are a myriad of potential tax issues to moving your shares to the Trust including potential forfeiture of tax losses and/or credits for tax paid. There could also be an opportunity to restructure your debt more effectively depending on how the sale is structured.

[Ivan McIntosh]

Jedimaster has nailed it. Myriads of trusts own property and shares. You just won't see them referred to in Company Office records or on the certificate of title (or Computer Freehold Register, as they are now called).

[Juicy Guava]

Thanks so much everyone for your replies, yes Jedi did nail it, it's clearer to me now. I always knew trusts could own shares, but I didn't understand what the deal was given that a trust cannot be named on a share register. As my husband and I are both named on the share register am I correct in thinking that we would split the 100 shares 3 ways (ourselves and independant trustee) and then adjust the share register to reflect that? Do we put the name of the trust after their names or not?

e.g. Juicy - Blah Trust
Hubby of Juicy - Blah Trust
Lawyer of Juicy - Blah Trust

[Ivan McIntosh]

No, no and no....(it's a "no" trifecta)

You'd say it (roughly) like this:

Juicy, Hubby & Lawyer jointly 100 shares

You all know you hold the shares on trusts described as the Blah Trust. The Companies Office, however, records the legal ownership only, not the beneficial ownership. The legal ownership is the three of you only, so that's all they record.

[Rosco]

Be very careful transferring shares, as mentioned by someone else earlier. There are a number of tax traps.

Also can't just transfer the shares. You need to sell them from the current owners to the Trust, at fair market value.

This debt would generally be documented, then you could gift it off, if you wanted to.

This overall is a complex transaction and you need to be very careful and get good advice.

Ross

[Juicy Guava]

Clearly i'm not an accountant, but I was thinking the following...
1. That we could gift the shares to the trust and then presumably the balance sheet of the company would remain the same i.e. money owed to hubby and I in our current account would stay there for the trust to repay at some future date and as there's no new debt, there wouldn't be any new liability.
2. I don't think we would trigger any depreciation recovered becaues the underlying asset hasn't been sold.
3. We've used up all losses (as it used to be an LAQC) and we don't have any credits for tax paid.

[jedimaster]

Clearly i'm not an accountant, but I was thinking the following...
1. That we could gift the shares to the trust and then presumably the balance sheet of the company would remain the same i.e. money owed to hubby and I in our current account would stay there for the trust to repay at some future date and as there's no new debt, there wouldn't be any new liability.
2. I don't think we would trigger any depreciation recovered becaues the underlying asset hasn't been sold.
3. We've used up all losses (as it used to be an LAQC) and we don't have any credits for tax paid.

I would still recommend you get accounting advice juicy, but I would make the following points:

- It doesn't look like there will be material issues. Ensure that you file an LAQC re-election form with IRD within 63 days of the share transfer, or you will lose qc status

- Make sure you run the numbers properly using conservative figures and long term average interest rate of circa 7.5% when calculating profit / loss expectations

- Your current account should ideally be gifted to the Trust for asset protection and to allow you debt restructuring opportunities in the future.

[Juicy Guava]

Awesome thanks so much for that great advice