Tuesday, June 18, 2019

Don’t ask me (why)** would a trust have made a family trust election?

As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers the above mentioned topic in a vidcast.

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below:

Why would a trust have made a family trust election?

Historically, primarily an election would be made because there are franking credits that are flowing through the trust.

In particular, if there are more than $5,000 worth of franking credits to be claimed, then you can't actually access them unless you've made a family trust election. This would be the main reason, and by far, in our experience, the most relevant one.

The other reasons include that there are losses or bad debts. It is infinitely easier to satisfy those rules with an election in place.

The last main reason is ‘because’ ... and that’s not a scientific term.

That's a term that ends with ‘because’.

There's nothing that actually comes after the because.

It is so easy to make these elections. You just tick the box and it's done. Our sense is that many accountants went through, particularly in the late 2000s, and made elections without any thought at all, and it was because.

When the election is then reviewed as part of an estate planning exercise, and we think this is going to come up more and more as part of the 328-G provisions, the conclusion will be ‘we don’t know why we've made that election and it's more restrictive than we need it to be’.

There might therefore be a planning opportunity for a trust that has made a family trust election that is later viewed as inappropriate.

In particular, under 328-G, it should be possible to transfer business assets across to a new trust that will not need to have made a family trust election.

** For the trainspotters, the title today is riffed from PiL’s song of the same name, from 1990.