Implications of not registering a trading name for the trust with corporate trustee

Hi everyone,

I’ve read plenty of posts re company structure vs trust and still have a couple of question. Would appreciate any help!!!

Background:
• me and my partner have a consulting business which my partner is currently operating under his own name
• we set up a company ACB Pty Ltd which we intend to use as a trustee for our discretionary trust (ABD Family trust) which is we are to set up
• ABC Pty Ltd has just been set up and no transaction gone through that company yet
• As we trade all around Australia it is rather difficult to register a trading name for the trust in each state hence we decided NOT to set up a trading name for the Trust and rather end up with the following structure “ABC Pty Ltd as trustee for ABC Family Trust”

Could anyone advice on the implications of this “limited” structure vs having a trading name for the trust and hence the structure would look like ABC Pty Ltd as trustee for ABC Family Trust trading as XYZ

As I’ve read on this site in one of the threads “The trustee company is effectively just a shell company which does nothing more than act as a trustee. It holds no assets, it does not trade, and most importantly, it does not put itself at risk (if it did, the assets it looks after may also be at risk).”

Does the above mean that not have a trading name for the trust would imply that the trustee company does the trading and hence this defeats one of the main purposes of having a trust which is asset protection????

I just don’t understand the difference and legal/accounting implications of having ABC Pty Ltd as trustee for ABC Family Trust vs ABC Pty Ltd as trustee for ABC Family Trust trading as XYZ

And if setting up a trading name for the Trust is the way to go then how would one do it if one trades in all the states (the main residence is in QLD)

Thank you very much

Emy,

You raise some good questions.

The structure you have selected gives you the combination of asset protection (via the company as the trustee) and flexibility to distribute income in a tax effective way via the Trust.

The legal name of the business is, as you described ABC Pty Ltd as trustee for ABC Family Trust. This name should go on contracts and invoices etc.

Always ensure your invoices are issued with the ABN of the Trust - as this is the entity that is trading for tax purposes.

A trading name (even just one registered in QLD) would simplify everything and allow you to use that on invoices, letterhead, bank accounts etc - although again ensure you use the ABN of the Trust.

I think it all gets tricky as the Trust in its own right can't do anything as it is not a separate legal entity - so the trustee (being the company) must do it on behalf of the trust. That is the legal basis behind it, which is different to the tax treatment!

Confused? I am!

Whatever state you register the trading name in, it means no one else can trade under the same name as you - so you reserve it. This prevents people piggy-backing off your good name.

If you added a trading name when you registered the ABN / TFN for the trust, it is likely the QLD Government will send you the forms to register the trading name (this happened to me a few years back).

In summary I reckon you should register a trading name in QLD for simplification, branding and to prevent someone else stealing that name.

Hope this information helps!

The important thing here is that if you trade through the trust, then any other assets that the trust holds are potentially at risk. Naturally if the only assets held by the trust are business assets, then this is not really an issue.

The alternative is to register a separate company with shares owned by the trust.

eg.
XYZ Pty Ltd trading as XYZ Widgets
Shareholder: ABC Pty Ltd as trustee for ABC Family Trust

Shareholders are not liable for the actions of the company (otherwise you'd be in trouble if you held HIH shares etc) ... so the assets of ABC Family Trust are not at risk from the actions of XYZ Widgets.

You also get to have the company pay dividends to the trust, which can then be streamed (along with any franking credits) to the trustees of the trust.

It adds another layer of complexity and cost - but it does allow you to keep your investment assets separate from your business.

This is exactly the structure that I use.

Note that I am not an accountant - this is not advice.