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Establishing an Australian Trust Fund for a Taiwanese Citizen

  • Insights 2018/06/11

By  Dr. Andrew Du Boulay

 

A Will is a written document that specifies who you want to receive your possessions after you die. Because it is such a powerful document, the law sets forth very strict requirements for what constitutes a valid Will. You can change your Will at any time and as many times as you want but most importantly, it is a wise idea to have a current up-to-date Will throughout your life.

 

The greatest mistake people who create a Will make is they think they are giving something away after they are dead. Unfortunately, once they are dead, their assets (or estate) are not theirs to give anymore, meaning someone else has to do the necessary work to transfer the assets and property onto the next of kin or to the specified beneficiaries. That process time consuming and can be very costly. It is therefore better and far more efficient to do a bit of estate planning before we die.

In Australia, there are no death taxes, inheritance or deceased estate taxes. 


This article examines how Taiwanese citizens can establish an Australian trust account. In Australia, people may bequeath their assets to whomever they choose without the beneficiaries having to pay any form of death duties. Thus, a Taiwanese citizen who has assets in an Australian Trust may assign those assets to their elected beneficiaries through the Trust prior to their death.

It is important however to recognize two distinct types of Trusts. One is a trust that comes into effect on the death of an individual through their Will where the estate (or assets) of that person are managed by a trustee, and the other is where the individual establishes or invests in a Managed Trust Fund before they die. It is the latter Trust that serves as the most manageable for handling the assets of a deceased estate and passing them on to the beneficiaries.


In a Will, the person who handles the financial affairs of the deceased person and is responsible for administering a deceased estate is most commonly referred to as the executor of the estate'. An executor is the person responsible for managing and distributing the deceased's assets according to the instructions set forth in the Will. The term executor applies only to a person specifically named in the Will by the deceased. Otherwise the duties are performed by an administrator, a person who applies to the Court in order to fill the role of executor when there is no Will or where there is a Will that fails to appoint a personal representative. 


In Australia, a deceased estate is treated as a trust for tax purposes with the executor taken to be its trustee. The executor is normally a responsible and capable family member who can handle the probate process but it could also be an appointed administrator, external trustee or a personal legal representative (PLR or lawyer/solicitor). 


If a person dies and they had an Australian Tax File Number (meaning they were already registered with the Australian Tax Office (ATO) and had previously filed annual tax returns), then there are some important tax and superannuation issues for the executor and the beneficiaries to perform, including: notifying the ATO of the death; doing the tax returns for the deceased person; and doing trust tax returns for the deceased person’s estate. As well as lodging a date of death Tax return, the executor may need to lodge a Trust tax return for the deceased person’s estate if the estate earned more than AU$19,000 in any year duringadministration of the estate after the death of the benefactor. If the estate is finalized within the same year as the death, then there is no need to file a Trust tax return.

Because there are no death taxes, inheritance or deceased estate taxes in Australia, people may bequeath their assets to whomever they choose without the beneficiaries having to pay any death duties. That being said though, if the deceased's estate has real property assets such as land or buildings in their own name (not under a private or administered trust or company, that were purchased after 20 September 1985), then there is a requirement that the beneficiaries may have to pay Capital Gains Tax (CGT) on the property they inherited if they choose to sell it. This is relevant because many Taiwanese citizens (and more recently Chinese citizens) have already acquired large real estate assets in Australia. The CGT is not payable immediately on the benefactor's death or even on the sale of the property, but rather it must be calculated and paid when the beneficiary files their annual tax return with the Australian Tax Office for the financial year in which they sold the property. If the beneficiaries hold onto the inherited property, then they do not have to pay any Capital Gains Tax. Considering the fact that there are no death duties in Australia, holding assets in Australia via a Managed Trust Fund is an ideal way to preserve the wealth of the family without having to pay Taiwan's inheritance tax.

The only implication for administering a deceased estate within Australia is if the beneficiaries of the Will are actually living in Taiwan when they inherit the Australian property or assets. It could mean the Taiwanese executor would have to appoint an Australian administrator to settle the affairs of the estate on their behalf. A simpler and more efficient way to manage an estate is to establish a Trust before the individual's death in the form of a Managed Trust Fund and allocate the proportions of the estate to the desired beneficiaries while the benefactor is still alive but which only come into effect after the benefactor dies. This way the benefactor still has complete control of their assets at all times up to their death and can vary the allocation of bequests anyway they choose. 

A Managed Trust can be created for the specific individual or they can invest in an existing Managed Trust with other investors and take advantage of Australia's higher interest rates as compared to those on offer in Taiwan. As an example, fully secured mortgage financing through a Taiwan regulated and compliant Trust investing in an Australian Managed Trust Fund can returnlong term benefits between 4·75 to 5·3 % per annum.

When compared to the returns on offer in Taiwan for long term bank deposits around 0·5 to 1·0 % the Australian option not only avoids the Taiwanese inheritance tax, but it also provides much higher returns via fully secured mortgage-backed securities.


AUTHOR: Dr. Andrew du Boulay
 


Dr. Andrew du Boulay is an Attorney / Legal Counsel, Brain Trust International Law Firm with offices in both Taiwan and Australia.

Copyright Brain Trust International Law Firm

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.