unit and family trust with company

Hi Guys

I am looking for some advise from you all.

I am looking to buy a business and looking to setup my company structure. According to what i have read and researched so far I need a family trust with company as a trustee. I have a discussion with my accountant and he advised to get a family trust and unit trust on top with company as a trustee. The reason he is giving is that if in future I want to have a partner in the business it will be much easier this way. So far I don't have any plans for the partnership but who knows what happens in the future. This whole setup if gng to cost me around 2500 or if i got with family trust with company it will cost me 1700

I am not sure if i should go with additional layer of unit trust in the structure or not? Is it really beneficial?

My concern is there would be more initial setup cost and then there would additional cost per year

Also is this type of structure is called Hybrid Trust?

Prob not a good idea to run through a discretionary trust. His structure has merit. This is not a hyrbrid trust either.

Terry_w said:

Prob not a good idea to run through a discretionary trust. His structure has merit. This is not a hyrbrid trust either.

Click to expand...

Thanks Terry, What merits would I have with this structure? Is it common to setup this type of structure?

unit trust with a corporate trustee will be a reasonable structure where you want to bring in equity partners.

alternative would be a company with shares held by a discretionary trust.

company will at least allow you to cap tax at the company tax rate of 30%. if your aim is to sell the business it can be a little more difficult getting the funds out tax effectively (i.e. using the small business concessions) from a company over a unit trust structure.

Benefits of a unit trust over a company include:
- not regulated by ASIC
- terms not public record, not one can look at who the unit holders are or where they live as they could with a company
- 50% CGT discount
- income retains its character when flows through
etc

psaini said:

Hi Guys

Also is this type of structure is called Hybrid Trust?

Click to expand...

No this structure isn't a hybrid trust. A hybrid trust is one which can issue various classes of units each with different rights. That's not ideal in some situations esp where borrowings are required. Also many UH want a fixed % entitlement which a UT does.

A blended UT and Disc Trust is akin to a class discretionary trust which needs to be established at day one. CDTs don't accommodate changes to parties very well. Either does a single disc trust. A sole DT could result in major tax issues and reconstruction costs later.

Key benefits of the UT as the "head entity":
- Trustee Co can have changes made to Dirs who manage the trust. No tax issues with changes (generally)
- UT can be reformulated at any time to reflect adding / removing UH who act as if they share in profits / capital etc.
- Each UH can have a DT as their entity that owns units representing each "partners" interests - This allows each to determine how they want their share of profit split.
- Continuity of ABN etc
- Hidden non-disclosure of owners... The clients deal with the Trustee Co
- Some trusts grow to be large and may require ASIC issues. Fewer than 20 unitholders is required without advice.. Some trust example include large real estate agency practices - Some of these are "widely held trusts" with the partners SMSFs owning the premises.

Issues :
- Trust MUST distribute fixed share of income or highest marginal rate is imposed (Deed may not permit that too !!). However if abnormal profits occur there are strategies available to defer final taxation using a company beneficiary of the disc trusts.
- Value shifting can be a CGT issue (Tax advice would explain that issue)
- Valuation of units needs to be a fixed basis. Many deeds do this poorly !!
- Rights of redemption ???It would be foolish to allow a right of redemption. Trustee discretion ?? What are the voting powers ? A UH agreement drawn by lawyer may be needed to address this

There is an emerging tax issue with use of DTs to hold a partners interest in some practice businesses. The ATO consider personal services income flowing to a DT may be a concern and are rattling the can at present. While this applies to lawyers and accountants it could flow further down.

Paul@PFI said:

A blended UT and Disc Trust is akin to a class discretionary trust which needs to be established at day one. CDTs don't accommodate changes to parties very well. Either does a single disc trust. A sole DT could result in major tax issues and reconstruction costs later.

Click to expand...

Thanks Paul

So may be it seems that its good idea to go ahead with this structure including Unit trust. I had another discussion with my accountant today and he kept stressing that addition of unit trust will help me in long run even though at the moment I dont think i will have a partner in the future.

My question always comes back to this if i would be buying similar business in the future then i need to setup a separate unit trust for it or else if i am selling the 50 percent of units that would mean that I am selling 50 percent of both the stores. If i have to setup a unit trust for each and every store i buy in the future then its going to be expensive and tedious structure with time.

I came across another issue that our PPOR and loan is in my name and to protect our home i want to transfer it to my wife?s name but she is on maternity leave at the moment.
My accountant advised it can only happen if the loan is fully paid or she can get a new mortgage. I just want to know if this is true and if there is any other way that I can do it?
Can i include her name in current mortgage and transfer the property to her name?
BTW i am from melbourne and as far i have researched there will be no stamp duty involved in doing so, Pls correct me if i am wrong.

psaini said:

I came across another issue that our PPOR and loan is in my name and to protect our home i want to transfer it to my wife?s name but she is on maternity leave at the moment.
My accountant advised it can only happen if the loan is fully paid or she can get a new mortgage. I just want to know if this is true and if there is any other way that I can do it?
Can i include her name in current mortgage and transfer the property to her name?
BTW i am from melbourne and as far i have researched there will be no stamp duty involved in doing so, Pls correct me if i am wrong.

Click to expand...

These are legal questions you should be seeking advice on from a lawyer. Depending how you do the transfer there may be little to no asset protection. Have you heard of resulting trusts and/or constructive trusts? Even if the house is in wife's name a trustee in bankruptcy may still grab half or maybe all of it.


Here is a clue for the loan side. All owners must go on a loan but a non owner spouse can go on to a loan.

psaini said:

My question always comes back to this if i would be buying similar business in the future then i need to setup a separate unit trust for it or else if i am selling the 50 percent of units that would mean that I am selling 50 percent of both the stores. If i have to setup a unit trust for each and every store i buy in the future then its going to

Click to expand...

You would probably be unwise if you bought a separate store in the same trust - assuming you are just running the businesses. If you are buying the property and the business then you should have separate entities to own the property and to own the business and then new ones for the next purchase again.