Income is distributed flexibly through the trust – at the discretion of the trustee. Tax planning also offers flexibility to accountants working with trusts, allowing income splitting where needed for beneficiaries.
What is a trust business structure? A trust business structure is unique in the way that it doesn’t have an owner in the traditional sense. The trust has a trustee that manages the business assets for the benefit of others. These others are called beneficiaries, and benefit directly from the trust.
The benefits of a trust business structure include:
While a trust can be beneficial for beneficiaries, it can be expensive and complex to establish. Dissolution or altering of the trust can also be difficult. That’s why it’s important to work with a tax accountant who understands trusts inside and out. If you’re thinking about a trust structure, Clear Tax can help.
Restructuring from a company or partnership to a trust requires some forethought and planning. Clear Tax can help you to organise, set up, and systemise this transition to help you get the most out of your position as a beneficiary.
Clear Tax’s business structure experts work with entities looking to form trusts to help them pay less tax. We can also help you ensure that all of your legal and tax obligations are met through the transition to becoming a trust, and beyond.
We want to help our clients succeed, but not at the cost of undue risk. We always operate ethically, giving you sound advice that will not jeopardise you or your trust. It’s part of our commitment to our clients.
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Trusts are formed when a company wants to protect beneficiaries. For example, Carlos owns a large, independently-owned garden centre, having inherited the business from his mother and father upon their retirement. Carlos’ own adult children all work for the garden centre.
The business has grown rapidly in the last 10 years under Carlos’ management. He now wants to involve his children more in its operation, while he takes a backseat. He seeks to set up a family trust for his children.
This trust is managed by a trustee, which holds all of the benefits for his children. They receive income directly from the trustee, as opposed to being paid by the business. His children’s personal assets are also protected from any liability.
While it works well, this trust structure was expensive to set up and operate under the formal trust deed. The trustee undertakes formal administrative tasks each year, and it is very difficult to dissolve or make changes to the trust in the future.
Changing structures to a trust is incredibly complex and we wouldn’t recommend it without some serious consideration. You need to decide whether you are switching to a unit trust or family trust, amongst other things. To learn more about trust business structures, contact Clear Tax.
The advantages of a trust structure are that income is disseminated to trustees, upon which they only pay their marginal tax rate. The trust is more private than a company, and most decisions are at the discretion of the trustee.
The disadvantages of a trust are that it is expensive and complex to operate, and difficult to dissolve. It can also be harder to borrow funds. Losses cannot be distributed, only profits, and these profits must be distributed each financial year or they will be taxed.
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