All Topics / Legal & Accounting / Trust with a minor as the beneficiary

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  • Profile photo of BrizzaBrizza
    Participant
    @brizza
    Join Date: 2003
    Post Count: 75

    In a Trust with a minor as the beneficiary

    – Does the trustee pay tax or is the beneficiary as a minor taxed at a penalty tax rate?

    – Is the beneficiary minor eligible for the 50% CGT discount?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Beneficiary is taxed. At marginal rates. But the trustee pays the tax because a minor is legally disabled.

    http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s98.html

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of BrizzaBrizza
    Participant
    @brizza
    Join Date: 2003
    Post Count: 75

    So the beneficiary is assessed for the tax payable (which can be at high rates) but the trustee actually pays the tax on behalf of the child beneficiary?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
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    I am not sure what happens in practice. I am not an accountant and have never seen a beneficiary receive income of more than $416 pa.

    In what circumstances would this arise?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of BrizzaBrizza
    Participant
    @brizza
    Join Date: 2003
    Post Count: 75

    Ok, cheers for the information.

    Profile photo of BrizzaBrizza
    Participant
    @brizza
    Join Date: 2003
    Post Count: 75

    Does a trust have a limit on the number of beneficiaries it can have and do the beneficiaries have to be named when the trust is drawn up?

    Also, if 100% of the profit is distributed to the beneficiaries, does the trustee still lodge a tax return reflecting profit incurred through the trust. Also, does the trust lodge a tax return in its own right or is the ‘trusts’ tax return, the tax return of the trustee?

    • This reply was modified 6 years, 3 months ago by Profile photo of Brizza Brizza.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    At any point in time the beneficiaries of a trust must be known with certainty. There is no limit but it must be possible to say whether X is or isn’t a beneficiary.

    A trust is not a separate entity but it is treated as such for tax reasons – like a partnership. A trust must lodge its own tax return

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi Brizza,
    Re your question” – “do the beneficiaries have to be named when the trust is drawn up?” – I have had a Trust set up for me some years back. I recall that beneficiaries can be included without names where they are actually “unknown” (e.g. children of a beneficiary who are as yet unborn).

    We have Primary beneficiaries, and there is also a Secondary and a Tertiary group. Our family group (Mum, Dad, and two sons) are Primary (and named) Beneficiaries. Any “children yet to be born” go into the Secondary or Tertiary group. So, there is provision for “expansion” shall we say.

    Re Terry’s comment “must be known with certainty”, that makes sense – i.e. if one of my sons were to sire a child, the certainty would be in the form of a Registration of Birth with my son as the father – even though un-named today, this future child can still be a future beneficiary.

    I can’t help with the other questions, sorry – I hope someone else can help with those.

    Benny

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I’ve just set up a trust for someone with a child where he donated sperm and he doesn’t appear on the child’s birth certificate. He wanted the child to be a beneficiary and we did that by naming the child and also changed the definition of child to include artifically made children. This avoids confusion as there is legislation which means children created by donating sperm are generally not conisdered children of the donor.

    further Benny’s comment, there are 4 broad classes of discretionary trusts. One with a closed class – so all beneficiaries are in existance and another with an open class which means future people can be beneficiaries – those to marry into the family and those to be born into a family. Also companies and trust later established can be beneficiaries

    One strategy is to marry a vendor just to avoid stamp duty by becoming a beneficiary of their trust.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of BrizzaBrizza
    Participant
    @brizza
    Join Date: 2003
    Post Count: 75

    In the event that trust profits are not distributed, does the onus fall back on the Trustee then to be taxed at the trustee’s normal rates?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Any income retained will be taxed at the top marginal rate in the hands of the trustee. The trustee should review the deed too to see if it is possible to retain income.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of Rob G.Rob G.
    Participant
    @rob-g.
    Join Date: 2010
    Post Count: 70

    So the beneficiary is assessed for the tax payable (which can be at high rates) but the trustee actually pays the tax on behalf of the child beneficiary?

    Minor beneficiary must submit a tax return if they are presently entitled to income of more than one trust, or if they have other income etc.

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