Indirect Benefit Protection Trusts – Family and /or Business Trusts
The main features of such a trust are as follows.
1.The Trustee manages the trust and is usually a shelf company . The Trustee is given widediscretionary powers in relation to the distribution of income and the allocation of capital among members of the client’s family and broader clases of beneficiaries and control of the trust generally so as to ensure that no impropriety or actual or alleged conflict of interest or other misconduct does not occur. The trustee should also have the discretion to distribute different categories of income to different beneficiaries. This a trust in which the beneficiaries are unaware of the trust's specific assets, and in which a fiduciary third party has discretion over all management of the trust assets.
2. The trust deed preferably does not enable the client to have the power to remove any trustee and toappoint a new trustee or trustees and the class of Discretionary Beneficiaries is wide ; and may include family members , associates and classes/types of charitable objects.
3.The trustee is given wide power to acquire or dispose of property, to carry on business and to borrow money. Commonly the Trustee is a specially nominated Third Party Fiduciary Trustee.
4.Such Trusts can also be useful for clients in public or other Commercial positions ; so that they maylegitimately avoid actual or legitimate conflicts of interest; the chosen Trustee(s) with integrity can prevent and advise so that any percieved or actual infractions do not occurr.
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What are some of the benefits of such a Trust?
1. If a business is run through a trust with a company as trustee, there are asset protection benefits. In a sole trader or partnership the owners of the business have unlimited exposure to the business risks. In other words if the business fails the owners might not only lose the business but also their personal assets as well. However, a trust with a company as trustee gives a substantial level of protection from the loss of personal assets.
2. A trust has the potential to give a great deal of flexibility in terms of the splitting of income to different family members and beneficiaries. This means that there may be significant tax benefits through a trust structure.
3. Unlike the owners in a partnership or sole trader family members and other associates that may work in the business can be paid wages and obtain other benefits of employment as well as be beneficiaries. This gives added flexibility.
4. Overall family trusts are less restricted than corporate structures in terms of making loans and getting money out of the business.
5. Capital gains earned through a family trust get the benefit of the 50% discount, whereas the discount does not apply to a capital gain through a company.
Overall, family trusts are often, in our experience, the best structure for family or other businesses.
There are however many complexities to consider. Every client’s individual circumstances need to be carefully considered before we would recommend a particular structure.
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