Trusts
Advantages and Disadvantages
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 26 Nov 2014
- There are many advantages of operating your business as a trust including:
- reduced liability for the business operator (usually the trustee) especially if the trustee is a ‘corporate trustee’ (a company set up to run the trust);
- a 50% discount method for calculating CGT is available along with other CGT concessions;
- assets may be better protected in the case of the bankruptcy or insolvency of a beneficiary as the assets are the property of the trust rather than personal property;
- additional asset protection can be provided by appointing a corporate trustee;
- it provides a mechanism for transferring wealth and family assets to the next generations; and
- there is more flexibility to distribute assets and income from the business to beneficiaries to ensure that all family members benefit from their tax free thresholds.
- The main disadvantages of running your business as a trust are:
- it can be complex to dissolve or make changes to a trust in the future;
- it can be more expensive than a partnership or sole trader arrangement;
- trusts are complex to establish and administer;
- strict and heavy responsibilities are placed on the trustee;
- profits that the business retains (accumulated income) might be taxed at top marginal rate; and
- losses can not be distributed among beneficiaries but are 'trapped' in the trust.
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