Running a business through a family trust

Can a trust be used to run a business? Can you put a company in a trust? When it comes to owning and operating a business one of the most tax effective and flexible business structures is a discretionary family trust.

It is not uncommon for a business to be started as a sole operator or a partnership of individuals, and then transfer the business to a family trust. The Benefits of Operating Your Business Through a Trust. We love our trusts here.

Trust structures allow you to separate your wealth and assets from your business risks. They effectively protect your assets, like your house, super, cars, and investments from attacks by creditors for bad debts, losses, or legal disputes. Profits of the business can be easily distributed amongst family members and other beneficiaries and can be distributed in such a way that tax is paid at the lowest available individual marginal tax rate (subject to various rules). If you are running a business through a trust , you will need to apply for an ABN and a TFN for the trust.

You should also consider whether you are required to register for GST and PAYG. When operating a business through a trust , you need the appropriate documents in place. What Documents Do I Need?

This includes a trust deed that allows the trustee to conduct the business.

The family members are protected from business risk and the trustee has the discretion to distribute the income in the most effective way possible. It is important to remember that all of the benefits offered by a discretionary trust for a family business make it a poor choice for businesses where more than one family or group is involve as neither group of beneficiaries retains a fixed entitlement to property or income. I run my business through a family trust and have a company as the trustee.

The benefits are flexibility with distributing the income but you do need to be wary of the personal services income rules. The trustee is legally liable for the debts of the trust and may use its assets to meet those debts. Focusing on four key steps can significantly improve the odds that the family business will stay in the family: 1. Transfer stock to an irrevocable trust during the controlling owner’s lifetime.

A trust is not a separate legal entity. Include family-business-friendly provisions—and exit provisions—in the trust instrument. A living trust for a business relieves the burden of business debts on your family members. If your business is not in a trust , business assets may be used to satisfy personal debts, and that could cause the business to fold.

The living trust also reduces the tax burden on your estate. The first is how a business should be owned and the second is who, or what, you choose to act as trustee if you decide to operate through a discretionary family trust. When a family trust is formed it requires a settlor, a trustee or trustees, and beneficiaries. The settlor starts the trust with a settled sum. This article provides some management tips for trustees so that you can best ensure your family trust will hold up to scrutiny.

Once you transfer property to a trust , it no longer belongs to you.

It belongs to the trustees who hold it on behalf of the beneficiaries. Additionally the family trust owned the building housing the company and all the equipment used by the company, for which the trust collected a monthly rent. The construction company had several problems and ended up going bankrupt but the family was able to restart with very little effort because the company that went under did not own any hard assets. This means if a son or daughter took over the running of a business operated through a trust , which had accumulated losses, there cannot be a change in the distributions they receive from the.

But even in the best- run family -owned businesses, the potential for embezzlement or other fraud is never far away. Situations change, tempting some people to break the law, or owners grow complacent as the years pass, placing too much trust in certain family members. With a trust , the money has to be used according to rules you set out. In the official jargon, a trust is a legal arrangement where one or more people or a company (called the trustees) controls money or assets (called the trust property) which they must use for the benefit of one or more people (the beneficiaries).

By running that business through a discretionary trust , where distributions are made by the trustee to three adult family beneficiaries, the tax would be reduced to $31(i.e. x $1407). The only way to take full advantage of the small business capital gains tax concessions is by owning a business either as a sole trader, a partnership of individuals, or through a family trust.