Family Trust Distributions to Adult Children
Family trusts are discretionary trusts established to hold a family’s assets or conduct a family business. The terms and conditions under which a family trust is established and maintained are set out in the trust deed. The trust is established by the trust’s settlor, trustees signing the trust deed, and the settlor giving the trust property (settled sum) to the trustee.
The benefits of a family trust include:
- Flexibility on income distributions,
- Ability to operate a business through the family trust,
- Provides asset protection,
- Intergenerational wealth transfers,
- No age limits to access trust funds, and
- Ability to hold personal use assets such as holiday homes, boats, racehorses, etc.
Family trusts are attractive structures to operate businesses or hold investments as there is flexibility in who receives the trust income each year. The trustee decides before the 30th June each financial year how that year’s trust income is to be distributed between various beneficiaries.
For the trustee, the overall tax payable on the income distributed to the beneficiaries is an important consideration so generally income will be distributed to beneficiaries in lower tax brackets.
As such, large tax savings can be achieved by distributing trust income to adult children (aged over 18 years) who are either studying or working part-time and are in low tax brackets.
