Is there any reason not to use an existing bucket company to transfer assets into for inline with the Business Protector Strategy instead of using a Family Protection Trust?

By way of general comment, the business assets must be transferred into a safe entity that ONLY holds assets with no potential litigation exposure. This may be a Leading Member Discretionary Trust, a Family Protection Trust or a separate bucket company (ideally a new structure to keep it neat and distinct from any existing structures). 

When considering an entity to hold assets with minimal litigation exposure, focusing on structures that offer legal protection and separation of assets from personal liabilities is crucial. Therefore there's the advantage with Trusts and you can have also ensure bloodline protection and continuity with a Trust.

Additionally, transferring business assets into a trust or a bucket company as part of a Protector strategy involves different considerations, each with its own set of advantages. Here's a general comparison focusing on the advantages of using a trust for this strategy:

Advantages of Transferring Business Assets into a Trust:

- Flexibility in Distribution: Trusts, especially discretionary trusts, offer flexibility in distributing income among beneficiaries. This can be beneficial for tax planning, allowing income to be allocated in a tax-efficient manner to beneficiaries who are in lower tax brackets.

- Asset Protection: Trusts can offer a higher level of asset protection from creditors or legal actions against beneficiaries. Since the beneficiaries do not own the assets, those assets are generally protected in the event of a beneficiary's bankruptcy or legal issues.

- Estate and Succession Planning: A trust can facilitate smoother succession planning. Control of the trust can be transferred without the need to transfer the assets themselves, allowing for a more seamless transition to future generations.

- Potential Tax Advantages: Trusts might have access to certain tax concessions not available to companies. For example, trusts can distribute capital gains to beneficiaries, who can then apply their own capital gains tax (CGT) discount if eligible.

- Confidentiality: Trusts can offer a greater level of privacy compared to companies, which are required to lodge annual reports and other documents with ASIC that are publicly accessible.

Advantages of Using a Bucket Company:

- Tax Rate: Companies enjoy a flat corporate tax rate, which can be lower than the top marginal tax rate for individuals. This can be advantageous for retaining profits within the company.

- Liability: Companies provide limited liability, which can protect personal assets from business risks.

- Simplicity in Tax: Unlike trusts, which must distribute income to avoid being taxed at the highest marginal rate, companies can retain earnings with tax paid at the corporate rate.

Depending on your situation, you are free to choose either only thing is it should be a separate entity that is used solely for the purposes of the strategy.

Please be advised this is general information only, and is not to be taken as legal advice. If you would like more information, or have a legal query, please contact Abbott & Mourly directly.
Published: 06/02/2024