While trusts can perform exceptionally well as a business structure, it's important to set them up correctly to avoid major issues further down the track.
During set up, you need to ensure that you choose the right trustee and beneficiaries, as well as consider the future direction of your business.
Once a trust become profitable, you also need to ensure that you complete proper tax planning each year to correctly distribute profits to beneficiaries.
Finally, because trusts don't pay tax (which is paid by the beneficiaries), you need to make sure that you are planning for a future tax bill by putting aside money during one financial year to cover the next.
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In a family trust company structure, assets are held by a third party. In the trust business structure, the trustee acts on behalf of the beneficiaries.
A trust can be ideal for businesses and individuals of all sizes – but bear in mind that they becomes tax-effective once profits exceed $100,000.
A trust can also benefit an individual looking to hold assets in a tax effective and legally protected environment.
Trusts do not pay any tax. Instead, any profit is calculated at the end of the financial year, based on the income of the trust, minus expenses and the previous year’s losses. Any profit is then distributed to the trust beneficiaries – whether that's you, your spouse, family members, or a bucket company.
A family trust is a great structure for growing businesses that have moved past the initial start-up stage. Once profits are growing and the business is taking on employees, a family trust should be a serious consideration.
Another benchmark is the amount of tax you pay. If you’re running a business with an average tax rate approaching 30%, a family trust can be beneficial in reducing the amount of tax.
A family trust should also be a serious consideration as a holding structure when making significant investments. Whether it’s running a business via a company, owning investment properties, or any other significant investment, a family trust can help protect those assets from financial and legal troubles – and it can also save you tax along the way.
A trust generally costs $1,500 + GST in legal documentation to set up, or $2,500 + GST for a trust with a corporate trustee. For more information about accurate costs of setting up a trust, get in touch with Liston Newton Advisory.