A Trust is a relationship where one party (known as the trustee) holds the legal assets for the benefit of another person (known as the beneficiary).
A common question that is often asked revolves around the type of assets that can be held on Trust.This guide will explore whether company shares can be held on Trust and the implications arising from this.
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Can A Trust Own Shares In A Company?
Technically, A trust cannot own shares in a company as it is not a separate legal entity, it is just a relationship. However, a trustee can hold legal ownership of company shares for the benefit of the beneficiaries. For example, if Jane Doe is registered as trustee for the Smith family trust. Although the trust itself cannot hold shares, the trustee (Jane Doe) can be listed as the owner of the shares for the benefit of the beneficiaries under the trust.
Advantages Of Holding Company Shares On Trust
There are various advantages for beneficiaries under a trust when certain assets are held on the trust.
Asset Protection
Since the shares are legally owned by the trustee there is scope for asset protection from third party creditors of beneficiaries.
Tax Planning
Due to the structure of a Trust, it means that the trustee can distribute income to the trust’s beneficiaries at their discretion.
Therefore, if there are multiple beneficiaries, the trustee can select the beneficiary with the lowest marginal rate. This can be used to minimise tax obligations on assets that the Trust holds, including company shares.
Ease of Succession
The structure of Trust allows for succession plans to be easily implemented. Control of the trust may be passed on to the next generation without triggering capital gains tax, or stamp duty.
Disadvantages Of Holding Shares On A Trust
Individuals looking to establish a trust for the purpose of holding shares must be aware of the potential disadvantages of adopting this approach.
Tax Implications
While there are tax advantages that arise out of using a trust structure, it does have its limitations. Minors are taxed at the highest marginal rate on that distribution unless they are genuinely working for a salary. Further to this, any income that the trustee does not distribute by 30 June is taxed at a penalty rate.
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Final Thoughts
The main advantages of holding shares in a trust are the tax benefits and asset protection for the beneficiaries. Overall, these advantages to holding shares on trust outweigh the disadvantages.
Regardless, of whether you decide to set up a trust for the purposes of holding company or decide to establish a company for the purpose. LawPath offers both a quick and easy company registration process and the ability to generate a discretionary trust deed all online.
Want to learn more? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from our largest online network of expert lawyers or to get answers to your legal questions.
