It may seem like only a few weeks ago that we were all making our perennial new year’s resolutions. Most will be well and truly broken by now!
Fortunately, your resolution to make a trust resolution need only be adhered to once per year. Making sure your trust resolution is in place before the 30th of June is a legal requirement. Aside from this, it is also a valuable opportunity to tax plan. This ten minute discussion between you and your accountant could be the most important ten minutes of your whole financial year.
Here’s a handy checklist on how to get the most out of your trust resolution:
1. Check the Deed (that old dusty official looking document written in 17th Century English)
First and foremost, your trust resolution must be consistent with your trust deed. If you wish to distribute income or capital to a certain family member or related party, they need to be referred to in the deed as a beneficiary. Some deeds may specifically exclude certain people from receiving any distribution.
Another good reason to check the deed is to keep an eye on when the trust is due to come to an end. Most trusts run for 80 years (unless your deed is settled in South Australia) but it’s always a good idea to be aware of the end date to give yourself plenty of time to formulate an exit plan with your advisors.
2. Make it clear
Your trust resolution must be unambiguous. Depending on how your trust deed defines income, your trust distributions will need to specify beneficiary entitlements in percentages or absolute amounts. You also need to make sure any potential leftover balances are assigned to a beneficiary.
3. Be Careful if ‘Streaming’ Capital Gains or Franked Dividends
Making particular beneficiaries entitled to specific types of income, such as franked dividends or capital gains, is known as ‘streaming’ in trust speak. If your trust deed allows streaming that’s great.
Issues related to streaming, such as who you choose to distribute income to, will need serious consideration as distributing to the wrong beneficiary could have a significant adverse impact.
Lastly, the trustee should make sure all income of the trust is distributed, as the trustee will be assessed on any residual taxable income at the highest rate of tax.
Trust law and the Australian taxation system is complex. Now is the time to get your affairs in order and make an appointment with your Accru advisor.