Is UPE a debt?

Is UPE a debt?

An unpaid present entitlement is not a common law obligation, but an equitable obligation. A UPE is therefore not a debt, since a debt is a common law obligation.

What does unpaid present entitlement mean?

An ‘unpaid present entitlement’ is a distribution from a trust which a trustee has decided to make, but has not yet paid out. It also applies to an amount not yet paid out of a sub-trust. continues to hold those funds on trust for that beneficiary, until the beneficiary calls for payment.

Can a UPE be forgiven?

The debt forgiveness provision refers to ‘debt’ and not ‘loan’ so does not apply to an extended definition loan UPEs. Accordingly, unlike a loan, a UPE cannot be forgiven by the operation of the statute of limitations.

What is a family trust election?

A family trust election (“FTE”) is a choice by a trustee to specify a particular individual (the test individual) around whom a family group is formed. The choice as to who will be the test individual is crucial, as not all family members will be part of the ‘family group’ for tax purposes.

What is UPE?

A UPE is an amount of trust income which the trustee of a trust appoints, but does not pay, to a private company beneficiary.

Can a trust forgive a debt?

A trustee forgives a debt owed by the trust beneficiaries. This is irrespective of a trustee’s natural love and affection for the beneficiaries.

Are unpaid present entitlements loans?

Is the UPE a loan? An unpaid amount to a beneficiary is not a loan by the beneficiary to the trustee. In ID 2013/15, the ATO confirms that by saying that the right that arises on the creation of a present entitlement is not a debt.

What is beneficiary entitlement?

An unpaid present entitlement arises when the trustee makes a distribution of income to a beneficiary, but keeps the cash referable to that distribution. The distribution is left ‘unpaid’. However, to make the distribution effective for tax purposes, the beneficiary must be ‘presently entitled’ to the distribution.

Is UPE a liability?

Being segregated from other balances in the balance sheet, it also emphasises the distinction that a UPE is not a liability in the generally accepted sense of that term.

How do you get money out of a family trust?

As stated above getting money out of your trust is done simply by making a distribution. This distribution can be made as easily as a bank transfer from the trust account to your own personal account.

How do you distribute money from a family trust?

Distribute trust assets outright The grantor can opt to have the beneficiaries receive trust property directly without any restrictions. The trustee can write the beneficiary a check, give them cash, and transfer real estate by drawing up a new deed or selling the house and giving them the proceeds.

How does a UPE work?

the UPE amounts to the provision of financial accommodation, which is a loan for Division 7A purposes. the trustee makes a payment or loan to a shareholder of the private company or their associate during the year, either directly or through one or more interposed entities.

What are the objectives of UPE?

Uganda is among the first Sub Saharan African countries that implemented Universal Primary Education (UPE) programme in 1997 with the main goal of providing basic education to all children of school going age.

Can a beneficiary borrow money from a trust?

A beneficiary can borrow from a trust as long as the trust documents allow for this. The trustee or successor trustee would need apply for the trust loan and sign the necessary loan documents and disclosures.

How do you account for debt forgiveness?

Adjusting Entry for Debt Forgiveness When a debt is cancelled or forgiven, an adjusting entry must be made on the company books to reflect the cancellation as income. It is usually done by debiting (reducing) debts payable on the balance sheet and crediting (increasing) an income entry on the profit and loss statement.

What is presently entitled?

According to Kitto J, the term presently entitled: refers to an interest in possession in an amount of income that is legally ready for distribution so that the beneficiary would have a right to obtain payment of it if he were not under a disability.

What is a sub-trust arrangement?

How do you calculate distributable surplus?

A company’s distributable surplus is calculated using the formula: Net assets + Division 7A amounts – non-commercial loans – paid-up share value – repayments of non-commercial loans = distributable surplus.

What is Division 7A ATO?

Division 7A is part of the Income Tax Assessment Act 1936 and is intended to prevent profits or assets being provided to shareholders or their associates tax free. A Division 7A deemed dividend is generally unfranked.

How does a sub-trust work?

Sub-trusts may be used to preserve federal estate tax credits for one spouse. Sub-trusts could be formed under the terms of the trust to be held and administered for individual beneficiaries. Typically, these sub-trusts are not created until a specific time set forth in the trust document.

How to avoid unpaid present entitlements ( UPES )?

Paying uni costs, wedding expenses and other amounts that benefit the adult child beneficiary etc can assist to discharge UPEs. UPE’s can become a issue if the adult child divorces as the trust debt is a personal asset. This can then drag a parent controlled family trust into the adult childs divorce.

How is an upe owed to an individual?

A UPE owed to an individual is an ‘asset’ of that individual. This is because the individual can demand payment of the UPE from the trust. Often people use trusts to pass assets to the next generation without the assets passing through their personal estate.

What kind of tax do you pay on an upe?

If the trustee distributes the income to a beneficiary, then the beneficiary will pay tax on the distribution at their marginal rate of tax – which could be anywhere between 0% and 47%. If the beneficiary is a company, then the company will pay tax on the distribution at the flat company rate of tax (namely, 27.5% or 30%).

Can a UPE become an issue in a divorce?

UPE’s can become a issue if the adult child divorces as the trust debt is a personal asset. This can then drag a parent controlled family trust into the adult childs divorce. Best avoided and discharge of the UPE with legal advice at the earliest opportunity is recommended.