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Taxation issues - Sheltering assets from duties and taxes

Tax Benefits- Income splitting and debt repayments.

Possible tax benefits should not be the sole reason for setting up of a Family Trust. In most cases however, tax benefits are what clients expect. Provided that there is a valid other reason for setting up one's Family Trust, Settlors are fully entitled to all taxation advantages which may apply.

At Sanctuary TrustLaw we ensure that you know about all  such tax advantages and, when required, we bring you in contact with taxation experts to discuss relevant trust issues.

Family Trusts allow Income Splitting at the end of each year. This happens where a Trust has taxable income, which is normally taxed at the trust tax rate.

If there are Beneficiaries in the Trust however, who are at a lower tax rate, then the Trustees may distribute Trust income to those Beneficiaries at their lower rate. This is called income splitting. In some cases a spouse may decide to work one day less per week and therefore receive a lower income and be eligible for a lower tax rate. When the trust monies are then distributed to that lower tax rate spouse, it may result in the overall income situation becoming better than when that spouse worked a five day week. This should be discussed with your accountant and also with us as your Trust Lawyers at time of the yearly review of all your trust matters.

We look at issues which may  benefit  you when you have Assets  of a mixed nature in your Trust:

  Income which is being earned by investments  in the Trust  can be set off against expenses and thus  lower your tax bill.

Distributions of earned income made to Beneficiaries, during the year, are assessed as  to whether they should be recorded as Income distributions to Beneficiaries, or whether they should be regarded as trustee income. There can be a large variance in taxation to warrant such an investigation at Review time. 

Capital distributions may take place as Debt repayments to Settlors, and thus speed up the Forgiveness of Debt procedure.

The above applies to most Trusts. To our surprise, very few professional independent trustees, such as Solicitors or Accountants, pay any attention to these matters . If you are lucky your accountant may ask you to sign a resolution , which deals with the signing off of the financial accounts, the investments and the distribution to Beneficiaries of the Trust.  Often the Trustees are not made aware of the possible tax advantages that may apply to their specific situation.

At our Reviews however we discuss these matters, and take up contact with your trust accountant to put possible favourable financial arrangements in place. We do this to make sure you receive all the tax benefits related to being a Beneficiary in a Trust.

Incidentally, did you know that you have a duty as a Trustee,  to ensure that your Trust  does not pay too much Tax ! You owe that duty to the Beneficiaries of your Trust.

Contact us to discuss your family trust requirements.
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