Despite their power and ubiquity amongst successful business
owners and wealth accumulators, Trusts are rarely fully understood.

As published in The Q Review Summer/Autumn 2021 Magazine.  Follow the link to Subscribe and receive your FREE copy each quarter!

One of the most fundamental, yet powerful, tools utilised by those looking to minimise their tax, and maximise their wealth, are Trusts.

Yet despite their power and their ubiquity amongst successful business owners and wealth accumulators, they are rarely fully understood.

That is not surprising, as there are elements of how they operate that can leave even the most experienced legal minds scratching their heads at times.

Nevertheless, if you can grasp a basic appreciation of their value, you can reap the benefits for years to come, and give you and your family the best opportunity to build, and to retain, the wealth you seek.

One of the most fundamental, yet powerful, tools utilised by those looking to minimise their tax, and maximise their wealth, are Trusts.

Tax Minimisation

The first reason to add a Trust to your business and wealth structure is to minimise tax.

Now having a Trust in itself doesn’t save tax, instead it is the flexibility the Trust provides that creates the opportunity for tax savings.

Trusts generally don’t pay tax themselves (unlike companies), instead income passes through them to family members, other Trusts and even to companies (collectively known as the “Beneficiaries” of the Trust as discussed in Part 2).

This means a Trust provides the flexibility to spread income throughout your family group, ensuring income is always being taxed in the most efficient places.

Trusts also provide the best access to capital gains tax concessions. The general 50% capital gains tax discount can be accessed via a Trust, but it cannot be accessed via a company.

Further concessions like the Small Business CGT Concessions (discussed in the 2019 Autumn Edition of The Q Review) are also more readily accessed, and more efficiently utilised, via a Trust.

Asset Protection

Another highly valuable benefit of Trusts is the potential asset protection they can provide.

Asset protection can be a controversial topic. Admittedly some use it to inappropriately avoid paying their way. But for us it is more about protecting you, your family and what you have built, from injustices. Ideally, it provides you options allowing you to meet your just debts, while shielding yourself from unjust claims.

The core asset protection benefit provided by a Trust is that ownership of assets and wealth can be separated from those at risk of future financial claims.

If you are personally pursued by creditors, all assets you personally own are exposed and could potentially be called upon to meet those claims. However, having assets held within a Trust structure, and therefore not owned by you personally, creates a barrier, potentially protecting those assets.

The concept of asset protection is not an exact science, and we would argue no adviser could ever guarantee a particular strategy will always survive attack. Instead, asset protection is about building barriers, over time, to enhance your position and reduce the chance of financial armageddon.

Succession Planning

The third key benefit of Trusts is the flexibility, and relative certainty, they can provide when it comes to passing wealth onto the next generation.

First and foremost, it is much more difficult for a disgruntled family member to challenge the terms of a Trust.

This is as opposed to a Will which, comparatively speaking, is much more exposed to challenges (and remember, the cost of challenging a Will is generally paid by the estate, not by the challenger, potentially
allowing a dissatisfied or even rogue family member to just ‘try it on’).

In some circumstances a Trust can also be used to pass control of a business or asset with little to no tax impact without the need to wait for the original controller to die.

Many a farm has passed to the next generation via this mechanism.

Watch out for Part 2 in coming weeks…

In the meantime, contact me, Kapil Bhasin – Director / Chief Tax Saving Strategist / Senior Client Manager, to arrange your FREE, No Risk, Initial Consultation to discuss how a Trust could benefit you and your family.