CASE STUDY #4
Dad was in business with 2 sons from
his first marriage. Dad had
remarried, and the relationship
between his new wife and adult
children was not good. Dad was
running the business with a family
trust as the operating entity.
This in theory would have meant
Dad’s wished would be
accomplished, however no one
looked properly at the business’
accounts…
Dad died and this meant the
Beneficiary Loan Account was then
owed to Wife #2 as an asset of Dad’s
estate. She clearly wanted to realise
this cash asset and Son Y and Son X
had to find the cash to give her. But
where was this money going to come
from?
Beneficiary
Loan
Accounts
Before his death, Dad decided he
wanted Son X and Son Y to inherit
the business and Wife #2 would get
everything else upon his death. To
accomplish this he left his estate
assets to his wife in his will and the
Trust Deed provided that in the event
of Dad’s death, Son X and Son Y
would be appointed trustees of the
Family Trust, hence have control of
the business.
In fact, over many years, Dad had
accrued a $1.8m Beneficiary Loan
Account which meant the business
owed Dad $1.8m at call.
Appointed Trustee
Business
Family
Trust
This effectively meant that real
control of the business ended up in
Wife #2’s hands, contrary to Dad’s
wishes.
Wife #2
FAQ: Why a Beneficiary Loan Account? A trust must
distribute its earnings. If it retains them, it is taxed at 46.5%.
If they are distributed then beneficiaries are taxed at their
Marginal Tax Rate (MTR). Beneficiaries can defer the
receipt of “cash” to retain money in the business, thereby
causing the existence of a Beneficiary Loan Account.
Dad
Son Y
Son X
Beneficiary Loan
Account
SOLUTION: Asset protection insurance could have
paid the loan back AND ensured that the sons
ended up with ownership of the business and “real”
control.