Is your trust structure still right for you?

So, as we approach the end of financial year, it’s a good time to review your trust arrangements.ⁱ

There are many reasons for taking another look at your trust, including:

• The trust deed no longer reflects your financial or family priorities.
• Distributions are not as tax-effective as they once were
• Your list of beneficiaries hasn’t been updated with new partners, children or grandchildren
• The trustee may not be appropriate now because of age or illness
• Administration may now be a burden and outweigh the original advantages

There are also some triggers that mean you may need to consider a more complex, or even a completely different structure, and these can include the following:

A significant increase in investment or business income

A basic trust may struggle to distribute income efficiently if there are fewer adult beneficiaries; the beneficiaries are already in high marginal tax brackets; or family circumstances have changed (children have grown and are now earning higher salaries).

You are accumulating assets across multiple entities

If investment portfolios, rental properties or business activities have expanded, a more sophisticated structure may provide better asset protection, simpler management or clearer succession pathways.

The trust is being used as part of a broader family wealth strategy

As intergenerational wealth becomes a priority, a traditional discretionary trust might not offer enough flexibility in some areas such as estate planning, managing capital gains or managing assets for vulnerable beneficiaries.

You are preparing for the sale of a business or major asset

A review is critical if a trust is to be involved in the sale of shares, business assets or property. Different structures can affect access to CGT concessions, including the small business CGT concessions.

Next steps

The good news is there are several ways to adjust the trust structure without starting from scratch, including:

Amending the trust deed - Many deeds allow for amendments to bring the document up to date such as modernising distribution provisions, clarifying beneficiary classes or updating powers given to trustees.

Changing the trustee - If the trustee is no longer appropriate, a change can be made to appoint someone more suitable or a corporate trustee to improve governance and reduce risk.

Updating beneficiaries or redefine classes - Some trust deeds allow for updating the list of beneficiaries or adjusting who can receive distributions. This can help ensure the trust continues to serve the family as it is today, not as it was decades ago.

Winding up the trust - If the trust is no longer useful, it may be best to wind it up to reduce costs and complexity, although capital gains tax and stamp duty implications will need to be carefully managed.

Changing the structure - Depending on your goals, alternatives such as a company structure or a self-managed super fund may be more suitable.

Consider hybrid or testamentary arrangements - Where estate planning is involved, testamentary trusts or hybrid structures might offer more control or flexibility, particularly if supporting future generations is your priority.

Why you might add a corporate beneficiary

Another option is to use a corporate beneficiary (often called a "bucket company"), which is commonly used to cap tax on trust distributions at the corporate tax rate.ⁱⁱ

Here are signs it may be time to introduce a corporate beneficiary:

• Your trust’s beneficiaries are approaching higher marginal tax brackets
• You need an entity to hold retained earnings
• You want more flexibility in managing year-to-year tax outcomes
• You are planning business or investment growth

As your financial affairs become more sophisticated, having a corporate beneficiary can expand the range of future planning options including reinvestment strategies, gearing, or structures such as corporate groups or family investment companies.

Whether your wealth is growing, your family is changing or your business is expanding, taking time each year to review your trust structure ensures you remain aligned with your objectives and compliant with tax law.

A review now may save tax, reduce risk and set your family up for greater flexibility in the years to come and we are here to assist.

i Trusts | ATO

ii Can a Company Be a Trust Beneficiary in Australia? | Sprintlaw