I have been approached by a client with a special trust for the first time which is verrrry behind - no records since inception 2009.
The beneficiary is her son. He had an accident, was paid out by the RAF. The money was invested so that income can be distributed to him.
Mom is the donor - donation amount in trust deed is R100.
Beneficiary lives off way more than what the interest can provide as he suffered brain injuries and cannot be gainfully employed and so Mom puts lots of personal money into trust for him - which I am recording as a loan to the trust and not donations as Mom needs it paid back eventually.
The initial payouts from the RAF will be debited to the investment accounts it was deposited into...but what do I credit??? I cannot credit an income statement account such as "compensation from RAF?" as it was not compensation paid to the Trust - it was compensation for the injured party, who now happens to be a beneficiary of a trust into which the funds have been transferred. But he is a beneficiary and not a donor...I am going round and round with this question.
Also, it appears that only from March 2012, compensation payments were non-taxable? Thus I assume the injured party has to declare that payment as a lump sum payout for that year?
No wonder the other accountants did not do anything...they too may have been confused??
I would appreciate your assistance