Trusts Overview
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 26 Nov 2014
Overview
When starting your own business it is important to operate through a structure that meets your particular commercial needs and family estate planning both now and into the future.
For some people who want to start a business a trust may be the best choice. There are a number of benefits from operating through a trust including:
- flexibility to allow for changing circumstances with minimal costs and consequences;
- adequate asset protection for the people running the business;
- minimisation of taxes and other costs; and
- the ability to distribute profits efficiently.
Depending on the type and scale of business you intend to operate there may however be significant disadvantages and unnecessary complexity associated with using a trust. The set up and maintenance of a trust is complex and can be more expensive than a partnership or sole trader arrangement. There are also strict and heavy responsibilities placed on the ‘trustee’ of a trust. Profits that are not distributed might be taxed at the top marginal rate. Losses are trapped in the trust and cannot be distributed to beneficiaries. Understanding the effect of these considerations on your particular business will assist you in deciding whether a trust is right for you.
This Legal Guide on Trusts provides small to medium business owners with information about setting up a trust. Before making important decisions it is advisable to obtain legal advice specific to your situation. LegalEagle’s™ free directory profiles all lawyers in Australia. You can use it to Find a Lawyer near you.
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Warning: Information provided through LegalEagle™ is for general guidance. It is not legal advice. Laws and procedures referred to may change and differ between states, territories and nationally. There may also be important exceptions or qualifications. Only a lawyer providing formal legal advice can assess your particular circumstances to determine how the law will apply.
How a Lawyer Can Help
Because of the complex regulatory and compliance frameworks governing trusts in Australia engaging a lawyer early in the process is highly recommended. A lawyer will help you understand how your specific business and family estate planning needs can be met through establishing a trust and whether it is the most appropriate option for your long term financial goals.
Engaging a lawyer to assist you in establishing your trust can:
- ensure that you are adequately informed about the relevant advantages and disadvantages of each available business option such as a company, trust, partnership, sole trader or joint venture;
- help you to understand how your choice of a trust structure will help or hinder your long term financial goals;
- ensure your choice of trust structure is the right one for your type of business;
- ensure that the trust deed is flexible enough to accommodate your changing business and family estate planning needs into the future;
- advise on which type of trustee can provide the best asset protection for the business and for individual family members;
- reduce unnecessary administrative and compliance costs;
- evaluate your different income, CGT, GST, land and other tax liabilities depending on:
- the type of trust you choose;
- the main functions of the trust;
- the range of beneficiaries; and
- the type of assets held by the trust;
- provide guidance on the different professional and industry requirements specific to your business type;
- assist trustees to manage their ongoing responsibilities such as the lodgement of tax returns and ensuring you adhere to the strict duties associated with the role of trusteeship;
- plan for the winding up of a family trust or the transition of the trust into a different business structure if your needs change; and
- help you resolve any disputes that arise against beneficiaries, unit holders or other investors.
Seeking legal advice before you establish your business can help you avoid making mistakes. Having someone guide you through the process one step at a time can also save you substantial time and money.