Page 8 - Wealth-Adviser-Issue-124 (FWP)

ISSUE 124
NOVEMBER 2025

distribution that once would have flowed tax-free within the favour of trusts—as one quoted adviser indicates, “I closed
group. our SMSF and now use a trust”—these issues loom especially
Similarly, beneficiaries and trustees face new uncertainty large. While audit fees and minimum pension rules may
around the 45-day holding rule, particularly when corporate disappear, sound estate planning advice becomes even more
beneficiaries are created after a dividend is paid. Without essential. The right trust can achieve secure, efficient wealth
clear guidance, trustees risk the ATO denying franking credit transfer, but missteps can leave loved ones adrift or asset
eligibility on technical grounds. Section 100A reimburse- control subject to fierce contention.
ment agreements also represent a live threat: these rules
focus on whether beneficiaries “receive the ultimate bene- Asset Protection, SMSF Alternatives, and
fit” from trust entitlements, with audits continuing despite Practical Scenarios
ongoing litigation and mixed outcomes in the courts. One of the family trust’s unique strengths lies in its asset
Commentators from KPG Taxation frame these develop- protection strategies. Compared to partnerships or even
ments as a sign that “ongoing vigilance” is now essential, SMSFs, trusts offer greater flexibility and security. “Running
as policies dating back to the Jon Ralph Review over twenty a small business through a partnership is inflexible with
years ago are again on the table. Proposed reforms include no asset protection for a start. A trust is better,” as noted
everything from a flat trust tax rate (possibly 24–30%), by advisers with decades of experience. For older couples,
treating trusts as companies for tax purposes, reducing the moving investment assets into a trust provides practical
capital gains discount, or implementing dual rates where control and reduced legal exposure, especially as family
passive income is taxed differently to labour. Such changes, circumstances evolve.
while not yet law, would fundamentally reshape the advan- KPG Taxation and Accounting Times both highlight
tages family trusts offer and require retail clients to review scenarios in which trusts provide more robust structuring
their strategies in anticipation. than direct ownership or SMSFs. Discretionary trusts allow
stewards to manage distributions to beneficiaries optimal-
Succession Planning and Estate Security ly—sometimes for tax reasons, sometimes to safeguard
Beyond tax, the family trust’s value as an instrument for assets from creditors, family law complications, or business
succession and estate planning remains one of its strongest volatility. Additionally, companies can be incorporated as
attributes. Unlike direct property ownership or even SMSFs, corporate beneficiaries to harness retained earnings and
discretionary trusts can be tailored to bypass delays like accumulate franking credits, though recent commentary
probate and facilitate smooth intergenerational wealth cautions that new regulatory interpretations threaten some
transfer. “Trust income can be redirected swiftly and simply of these advantages.
upon the death of the primary beneficiary,” writes one Nevertheless, trusts are not a panacea for tax minimisa-
experienced accountant, “ensuring continuity of income to a tion. As FirstLinks puts it plainly, “tax benefits arising from
spouse and setting the stage for further transitions suited to use of trusts are limited in the overall context and have so
the family’s unique needs.” for a very long time. They are useful for legal structuring
Quotes from FirstLinks highlight the elegance of trusts in and can be helpful in asset protection.” In fact, some
avoiding the “delays of probate (or, worse, a contested will)” practitioners argue for greater enforcement of existing law
and enabling options such as spendthrift trusts for children rather than more complexity, especially as issues like unpaid
or charitable donations. Importantly, such arrangements distributions, Division 7A loans, and reimbursement agree-
can be crafted to maintain control in unpredictable family, ments are subject to fresh litigation and possible legislative
market, or legal environments, always at the discretion of overhaul.
the appointed trustee—a role commonly filled by a company Alternate structures, such as investment companies with
whose directors evolve alongside the family’s needs. tailored share classes, are increasingly used to replicate
Yet this flexibility comes with risk, especially if trust or even outdo some trust advantages. But for most retail
elections and succession plans are not carefully stewarded. clients, the discretionary family trust remains an attractive
Cases where FTDT is triggered during generational change, baseline, so long as they are prepared to manage its compli-
or where the test individual’s passing throws planned ance obligations and adapt to evolving taxation rules.
distributions into disarray, demonstrate the hazards of poor
administration. Accounting Times argues that “succession Philosophical and Policy Debates: The Future of
must be embedded into the very design of the trust,” not the Family Trust
bolted on as an afterthought, lest beneficiaries find them- The family trust has always been at the centre of wider
selves exposed to sudden tax burdens or legal disputes. philosophical debates around fairness, generational equity,
For families contemplating the winding up of SMSFs in and the burden borne by different taxpayers. Contention

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