What’s in it for you? A family trust and your business - Part I

Trust structures can offer certain benefits to family businesses. In this article, we examine how a ‘discretionary trust’ can benefit your business.

Taxation benefits of a Discretionary Trust

A discretionary trust structure is particularly valuable because none of the ‘beneficiaries’ of the trust (i.e. people who can receive money from the trust), have any entitlement to the assets or income of the trust. This means that from year to year the trustee can determine who ought to get a distribution from the trust.

For example, a husband and wife run a business selling ski apparel and their son wishes to get married. To help their child, the trust distributes money of the fund to the child as a listed ‘beneficiary’. The son then could pay tax at his lower rate.

Asset protection

Family trusts can also be beneficial for asset protection. For example, a mother and father run a family business quarrying and selling sandstone out of a commercial property owned by the business. The daughter may also assist her parents in the business and the parents distribute money from the trust to the daughter from time to time as they see fit.

If the daughter gets into financial difficulty and owes debts to creditors, the creditors cannot touch the commercial property as it is owned by the trust and she has no ‘fixed’ entitlement to the trust.

If you have further questions, please contact us at frank@franklaw.com.au

This is not legal advice. 

Written by Tim Cargill & Zdenka Marinov and edited by Andrew Graham.