Tuesday, July 8, 2014

Importance of minimising loan accounts to at risk beneficiaries

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Importance of minimising loan accounts to at risk beneficiaries’.  If you would like a copy of the video link please email me.

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

The reality in relation to beneficiary loan accounts is that sometimes they're unavoidable.

If distributions are being made by the trustee down to an at risk beneficiary and those amounts aren't physically paid, then they’ll sit on the balance sheet either as a credit loan or an unpaid present entitlement.

In either scenario, that’s clearly an asset of the at risk beneficiary. So it’s really important that on a regular basis those potential assets are reviewed and steps are taken to ideally quarantine them away into a protected environment.

The simplest approach, assuming that you can't avoid the distributions coming down to that person, will be to forgive that debt, or as an alternative, making sure that the outstanding amount is gifted across to a protected environment whether that be a spouse, some other family member or perhaps some other related structure.

The critical thing in all of that, quite aside from the pure bankruptcy issues is however that there must be a particular effort applied to the related issues. That is, things like the commercial debt forgiveness rules, wider tax planning issues and the stamp duty rules, that are unfortunately different in every jurisdiction around the country, are all potentially relevant before any step can be taken to quarantine the loan account wealth. 

Until next week.