Intra family agreements (IFAs) in lieu of formal asset transfers
This mechanism is fast becoming an acceptable way of passing control of the family wealth to the next generation but retaining control of it at the same time.
The minefield of CGT and stamp duty issues can be largely avoided when this procedure is correctly implemented.
For example, the IFA has to contemplate the perceived ownership of shares in companies and corporate trustees. But that ownership may not be consistent with the real ownership evidenced by the IFA.
Often share classes with differing rights – such as voting, dividend and capital shares might have to be created. These shares could be owned by a variety of persons including family members, independent advisors or a management team.
It might be that the company constitution be changed to entrench the rights of the holders of the newly created share classes. A shareholders agreement might be necessary.
The documents must deal with what is to happen when the holder of each of these various types of shares dies. For example, there may be a provision that upon the death of an advisor who holds voting shares, those shares be transferred to another advisor and if they are not then their special rights terminate.
If appropriate, and subject to the trust deed being properly drawn to reflect the post Bamford Tax Laws Amendment Act No.4 2011 streaming rules, the IFA should determine which siblings and their own family members are to benefit from various types of dividends, income, capital gains, capital losses and other expenses.
The family trust and the shareholders agreement and/or trustee company constitution should have a default position as to distributions where no agreement in any year can be reached as to who is to get what. This avoids the possibility of a majority of siblings ganging up on a minority.
If different types of income, gains and losses are to be streamed to different beneficiaries, then the trust distribution minutes MUST be carefully drafted to ensure that the tax consequences for those distributions are consistent with their economic substance.