Tuesday, July 30, 2019

Hallo Spaceboy** - Distributions ‘outside’ a family group

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 –

One strategy we are seeing implemented by an increasing number of clients is the amending of a trust instrument to reflect what the position is due to the family trust election that has been made for that particular trust.

See here for a visual of the family tree as it is defined under the legislation as to what forms part of the family when a family trust election has been made.

This can mean that following the mantra of reading the deed can be misleading. This is because if you have looked at the trust instrument and you have decided that a particular party is a potential beneficiary, then that should always be overlaid with what the family trust election permits.

In other words, simply because a party is a potential beneficiary under the trust instrument, this doesn't mean that it’s necessarily a smart idea to distribute to that entity. This is because if the distribution is outside the family group, then the tax is effectively at 50 cents in the dollar.

Indeed, even if the distribution is otherwise a discounted capital gain, the penal family trust distribution tax is triggered.

Historically, the concept of quite radically redrafting a trust deed to ensure that it reflects what the family trust election says has not been popular.

Now however, we see an increasing number of clients amending their trust deeds to minimise the risk of distributions outside the family group.

** For the trainspotters, 'Hallo Spaceboy' is the lead single from the David Bowie’s 1995 album ‘Outside’.