The Basics of Business Structuring – Trust
A trust is a relationship where a trustee (an individual or a company) carries on business for the benefit of other people (the beneficiaries). For instance, a trustee may carry on a business for the benefit of a particular family and distribute the yearly profit to them.
A trust may be discretionary (i.e. the trustee decides how profit will be distributed among beneficiaries) or have fixed interests (i.e. it will benefit certain people in predetermined proportions). Commonly, the trustee is a company (a corporate trustee); as the trustee is liable for any debts that cannot be paid for the trust’s assets.
Common advantages of a trust:
- Provides asset protection and limits liability in relation to the business.
- Separates the control of an asset from the owner of the asset and so may be useful for protecting the income or assets of a young person or a family unit.
- Trusts are flexible for tax purposes. A discretionary trust provides flexibility in the distribution of income and capital gains among beneficiaries.
- Beneficiaries of a trust are generally not liable for the trust debts, unlike sole traders or partnerships.
Each structure becomes more complex as you move down this list, particularly trusts. There are different tax concessions and reporting issues, which will vary by structure, by state and by industry. And they keep changing every year. If you’re unsure or undecided, a Modoras Accountant or Financial Adviser will be able to explain which structure is the most suitable for you and help you manage the issues for each one.
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