If you are looking to setup a trust arrangement to run your business, buy a property or for any other reason, then there can be several facets they you may be unaware of. Forming a trust can be complex as compared to other straight forward business structures like companies or partnerships. Overseeing this complexity of forming and managing a trust, it is worthwhile to note that there are numerous benefits of trading under a trust structure.
How a Trust Is Taxed (The Primary Benefit)
The primary benefit of a trust lies in how we tax it. A trust can distribute profits flexibly to its beneficiaries. Consequently, each beneficiary pays tax according to their individual tax rate. As a result, the trust itself generally pays zero tax.
What Is a Trust?
A trust is a legal relationship between a Trustee and a Beneficiary. The trustee operates the trust for the benefit of the beneficiaries. The trustee distributes profits among the beneficiaries. However, the beneficiaries do not control the trust’s operations.
As the role of a trustee is very challenging, it is very important to understand the legal obligations and duties of being a Trustee. Another crucial aspect while forming a trust is to understand the Trust Deed, since the business can operate only based on the conditions outlined in its deed.
Choosing the Right Trust Type
Your business needs will determine the right trust type for you. Therefore, consider your goals before deciding.
Family Trust:
An option of forming a Discretionary Trust commonly known as Family Trust is available where the family members can be a part of the trust by availing the title of Beneficiary or trustees. The transfer of profits to beneficiaries is flexible in nature.
Unit Trust:
A primary feature of a Unit Trust is that it can function like a company. The only difference? Shareholders become unit holders. The transfer of profits to beneficiaries is proportionate to the units held by each beneficiary.
Hybrid Trust:
A Hybrid Trust combines a Family Trust and a Unit Trust. From the beneficiary’s point of view, this structure offers flexibility. You can transfer profits partly based on the units each beneficiary holds. The remaining portion remains flexible in nature.
Please note that this is just a bird’s eye view on the features of a trust and has many more dimensions to it.
Do not hesitate to call us now for more information and/or to determine the suitability of setting up a trust arrangement for your business. Alternatively you can fill out our online form and submit your details and we will get back to you with an update.