Bank Account Continuity

[pete9999]

Hi, my clients, a husband and wife in their 80's and each trading as sole props are concerned when either of their bank accounts are frozen after one of them passes on. Their attorney advised them to enter into a partnership agreement and to open up a bank account in the partnership but their bank advised them a partnership is not the way to go, as the account would still be frozen if either one of them died.

They own rental properties which are all in their personal names. I'm thinking of registering a pty for them so that the pty bank acc will have continuity, and then re-directing all rentals and expenditure via the pty and their salaries would reduce the pty taxable income to zero and be taxed in their hands at the end of each year. The properties would remain in their personal names.

However I'm not certain if this is the best course of action and would appreciate feedback or better alternatives.

Many Thanks

Peter

[Dave A]

I'm shocked an attorney would advise them to go into partnership to prevent the bank account being frozen upon one of them passing.

When a significant shareholder or director passes away, even a Pty Ltd might have its bank account temporarily frozen. It seems the banks freeze the accounts first, and then wait for the squeals validating why it should be unfrozen and deal with those on their merits.

Ordinarily the solution is to divest into a trust (or trusts) to prevent frozen bank account problems. At 80 though, kinda late in the game to start divesting significant assets.

[HR Solutions]

Yes I am also shocked. Attorneys sometimes don't think !
I would also reckon a Trust and get another 3rd person (a trusted person or a trusted lawyer) to be on the Trust.
A Trust would not be frozen. The only downside is the tax implications of 40% of the profit made - so you need to put all your expenses thro the trust as well.

[Justloadit]

Could the Trust not pay salaries, which would reduce the profits the trust makes?
The PAYE based on their age would be reduced, so they would get the best of both worlds.

IMHO, there are considerable advantages, even at this late stage.
- The Sole Prop, with respect to rental income, could sell the business to the Trust, The Trust could then pay them "a Fee" for use of the property to generate business.
- They could cede their assets to the Trust in their will, which would protect the remaining spouse, although there will be tax payed to transfer the property over, but this is the best at this stage.

I would suggest visiting a good Trust attorney, and see what they could offer to cover the current situation.

[pete9999]

Could the Trust not pay salaries, which would reduce the profits the trust makes?
The PAYE based on their age would be reduced, so they would get the best of both worlds.

IMHO, there are considerable advantages, even at this late stage.
- The Sole Prop, with respect to rental income, could sell the business to the Trust, The Trust could then pay them "a Fee" for use of the property to generate business.
- They could cede their assets to the Trust in their will, which would protect the remaining spouse, although there will be tax payed to transfer the property over, but this is the best at this stage.

I would suggest visiting a good Trust attorney, and see what they could offer to cover the current situation.

Thanks for the advice, much appreciated I was thinking right now Pty because its cheaper and quicker and when the first passes their estate is bequethed to the other which will be into a Trust and making use of inter-spousal exemptions on estate duty and CGT. Problem comes when the 2nd spouse passes and children inherit, the estate duty abatement is much lower than the value of their estate and high tax will have to be paid then.

As Dave A mentioned estate planning should have been done ages ago.

[pete9999]

Yes I am also shocked. Attorneys sometimes don't think !
I would also reckon a Trust and get another 3rd person (a trusted person or a trusted lawyer) to be on the Trust.
A Trust would not be frozen. The only downside is the tax implications of 40% of the profit made - so you need to put all your expenses thro the trust as well.

Thanks for the advice, much appreciated.

[pete9999]

I'm shocked an attorney would advise them to go into partnership to prevent the bank account being frozen upon one of them passing.

When a significant shareholder or director passes away, even a Pty Ltd might have its bank account temporarily frozen. It seems the banks freeze the accounts first, and then wait for the squeals validating why it should be unfrozen and deal with those on their merits.

Ordinarily the solution is to divest into a trust (or trusts) to prevent frozen bank account problems. At 80 though, kinda late in the game to start divesting significant assets.

Thanks for the advice Dave, much appreciated.

[pete9999]

Thanks for the advice, much appreciated.