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Optimising Your Agency’s Financial Position for Growth

Creating space for growth in a real estate agency is important for staying ahead of your competition and capitalising on opportunities that can drive your agency forward. Growth is achievable when the right strategies are implemented to optimise your financial.....

Trusts - 5 min read

Operating your business through a trust presents several key advantages. You have access to attractive options for managing your taxes and protecting your assets. Additionally, a trust’s legal structure makes it possible for more than one person (or company) to oversee property for someone else’s benefit.

 

But if you’re unfamiliar with trusts, the concept may seem overwhelming or complicated. We’ve put this information together to put your mind at rest and help you to explore your options.

 

Let’s start with some basic definitions.

 

What is a trust?

Simply put, a trust is a structure that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be setup in different ways to meet the specific needs of the parties involved.

 

Discretionary Trust

With a discretionary trust, a trustee (or trustees) holds the property for the beneficiaries. The trust’s appointer has the authority to hire and fire the trustee. Therefore, the appointer retains the ultimate control over the trust’s wealth. Many Australian businesses operate in discretionary trusts to gain the following benefits:

  • Flexibility over capital and income distribution
  • Structured to hold assets for the benefit of multiple beneficiaries
  • Asset protection

The beneficiaries of a discretionary trust are typically family members, other companies and charitable organisations.

However, someone who is in the market for a trust, must weight up the cost of the ongoing compliance and regulatory requirements. A trust will incur compliance costs annually, on top of your own income tax costs and requirements.

Trusts also do not receive concessional taxing, the income generated from a trust is taxed at the marginal tax rates of each individual beneficiary. So if you are the only beneficiary, or all the trusts beneficiaries pay tax at the highest marginal tax rate, a trust isn’t going to add any value in these situations.

 

Family Trust

A family trust is still a discretionary trust. However, a Family Trust Election (FTE) has been lodged meaning only immediate family members (parents, grandparents, spouses, children, brothers and sisters) can be beneficiaries of the trust. It means trusts with this election can stream things like franking credits on investment income to their beneficiaries, which ordinarily cannot be done in a typical Discretionary Trust.

Let’s take a look at ways family trusts can help with running the family business and protecting the family’s wealth.

 

Asset Protection

Business owners know that liability can be a source of anxiety and constant concern. In the event of business bankruptcy, will your personal assets become susceptible to your business losses? If your family trust is set up with a corporate trustee (company trustee as opposed to an individual trustee), this will assist to protect your assets in the event someone or something comes at you and makes a claim against your personal assets which are held within the trust.

 

Tax Optimisation

Tax is paid at our individual marginal tax rates. Therefore, being able to allocate income to beneficiaries with little to no income, with lower rates of tax will create tax benefits. But you are also obligated to pay the distribution to that family member. So always bear this in mind when choosing who you would like your beneficiaries to be.

If you’d like to discuss the suitability of a trust for your business or family, get in touch with one of our Altus advisers. Why not increase the financial savviness of those in your family and business? A trust might be the vehicle you’ve been looking for!

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