My own trust as private lender to my LLC?

Question

Hi all, will try to keep this as short as possible for everyone's benefit!

I live in Australia and earn a good salary that has me into the 37% tax bracket.

I invest in property in the US via an LLC, of which I am the only member.

Now, to minimize tax, I want my discretionary family trust to act as a private lender to my LLC. This  way, the LLC "pays back" the trust, allowing me to distribute my profits through my immediate family at a much lower tax rate. I'm just not sure where I stand legally.

To me, as long as I have a promissory note in place, it all seems above board, however please let me know if there are any issues with this, or any known precedents known.

Cheers! Ben.

PS: please provide me with information that is general in nature and not legal advice as I will consult a CPA/attorney (saves you having to type it out!)

Jordan Sinclair · Answer

Hi Ben,

Depending on how much profit you have to distribute, some investors just add LLC members to streamline matters.

Ben Whittaker · Answer

Hi Lance, the trust is Australian, with me being the trustee (ie the one who controls the trust and determines how any funds are spread to the benficiaries)

I'm comfortable with the laws surrounding this and the distribution of income.

My main concern is how the US Gov views this system of my trust loaning money to my company in an effort to reduce taxes.

We have some pretty interesting tax laws here in Australia and the more time I spend reading, I somehow seem to end up knowing less than when I started haha.

Just trying to generate a fairly simplistic view of the US tax system for myself.

Thanks again.

Lance Lvovsky · Answer

@Ben Whittaker

The LLC would have an interest deduction which can reduce taxable income. But you have other issues that needs to be explored - what kind of trust is it (US or foreign) and is it grantor vs nongrantor trust. Consult with a CPA regarding the trust tax laws.