Strategic Trust and Tax Planning.
People often "set and forget" their trusts and other legal documents. However, regularly reviewing your asset structure might save you money down the line, give you greater tax efficiency and ensure your wealth is being passed down as you intend it to be.
This scenario offers an example of one possible outcome…
Albert and Mae had owned a successful business for many years. It had started out small, but now had a number of staff and locations throughout the country.
They enjoyed a great lifestyle on the North Shore and had a holiday home in Omaha. Both their family home and their bach were in their family trust. Their accountant, who is also the independent trustee on their trust, had recommended that many years ago to protect from business risk in the early days.
Albert and Mae owned the shares in their business in their personal names. One of their children worked in the business and they hoped that at some stage in the future she might want to take over when they were ready for retirement. But they were quite a few years from that. It had been quite some time since they had reviewed the trust deed, wishes for the trust, and revisited their wills. They also couldn’t remember if they had enduring powers of attorney.
They went to see the lawyer they had used for many years for the business and any personal matters that arose. He advised them that Trust Law had become very specialised over the last few years and given the potential complexities of their affairs, they should go and see a specialist trust lawyer. He gave them a recommendation and they made an appointment to see her.
The lawyer reviewed their documents and gave them lots of practical advice around their trust, wills and wishes (including updating the enduring power of attorneys that they did have, to include alternates in case one of them had died or they both lost capacity).
They hadn’t realised that the spouses and partners of their children were beneficiaries of their trust.
While they loved their in-laws and didn’t expect any issues in the future, they really did want to make sure that what they passed onto their children would not be divided in two in the event of a separation. The lawyer suggested ways in which they could fix the trust to prevent that from happening.
She also questioned why the shares in the business weren’t in a trust. The value of the company had increased significantly over the years and she explained from an asset protection perspective, it was important to have all their valuable assets in a trust.
She also said that there were potential tax benefits to having the shares in the trust. Despite the negative publicity around the trust tax rate increasing to 39%, trusts still offered a very flexible vehicle to be able to provide greater tax efficiency. Albert and Mae had been paying their grandchildren’s private school fees for a number of years, and she said that even those could be more effectively paid through a trust.
The lawyer said she would liaise with their accountant, and bring in specialist tax advice if required, to create greater efficiencies.
Albert and Mae were thrilled. They came away feeling confident, and even if they hadn’t fully understood some of the detail around the tax piece, they knew they were in good hands.
With the change in the trust tax rate to 39% from 1 April 2024, it is the perfect time to review your affairs to ensure that you are getting the most from your structuring. Even if your income producing assets are already in a trust, there may be opportunities to re-structure for commercial reasons that will give you greater tax efficiency. It is the perfect time to be getting legal and tax advice. If you have your company shares held in a trust, talk to your accountant and lawyer about the feasibility of declaring a dividend before 31 March 2024 and whether that is the most efficient thing for you to do.
If you feel you could use some specialist advice, don’t hesitate to contact the Trusts & Wealth Protection Team.
