Is it time to consider winding up my Family Trust?

A looming 39% Trustees tax rate on top of increased compliance, disclosure, overseas residency issues and changes to the Trust Act mean it is timely to consider why you have a Trust, and if it is still valid.

Running a Trust requires a degree of compliance, as well as an understanding that you need to be involved and active as a Trustee. It may be the Trust has indeed run its course. If this is the case, then simplifying the way business and personal affairs are managed can be a compelling reason for winding up a Trust.

Also, while many Trusts were set up with residential rest home subsidies in mind, this is becoming more problematic and unreliable. If there is any ability to look through the Trust and treat Trust revenue as if it were in the hands of the individuals it means that, Trusts are, more often than not looked through to determine the overall asset position. A Trust then has little or no value at all here when it comes to accessing government rest home subsidies.

Despite all of this, much of the rationale for why Trusts were set up is still relevant and includes:

  • protection of assets from business risks, legal action or financial failure
  • holding assets until certain beneficiaries come of age
  • a ‘living will’ as a method of managing the family inheritance
  • keeping property separate from any relationship property

The benefits of continuing with a Trust depend on where you are in the business cycle. It could be you are in a very different place from when you originally set up the Trust. Questions to consider include:

  • do you have business risk that needs to be mitigated through the use of a Trust?
  • has the family succession been dealt with? Or could it be handled another way?
  • have other circumstances changed that mean the Trust is now adding little value?

As it is timely to discuss the relevance and purpose of your Trust, we encourage you to consider these points and raise in your next meeting with us, or Annual Accounts review.

Alternatively please do not hesitate to contact us directly to review your situation or discuss further, we are always happy to assist.