Trusts and succession planning
Trusts and succession planning

History of trusts for succession planning

In the 1970s, Trusts were used a lot for what was then called, “Estate Planning”. Changes in tax, land tax and family law have removed many of the benefits for farmers and small business owners. Many advisers still recommend trusts but their complexity can involve high accounting, tax and legal fees for the clients. Clients should carefully weigh up the pros and cons before letting ad`visers set up trust for them.

Succession planning for taxes and duties

The great advantage of the trust is that nobody actually owns the real estate or money, though someone is trustee or controls the company that is trustee.  Death does not trigger death duty, because the farm, business or home is not owned by anyone. Right now there is no death duty and Capital Gains Tax (CGT) may apply not apply either. Many family farms and businesses are handed to the next generation. The same may apply to homes given the housing crisis inflicted by federal immigration policies, so a trust holding the title would suit. But, if there is no death duty and CGT does not apply the advantage is not so obvious even from a tax viewpoint.

Succession planning that retains control

What a trust may do is allow the older generation to control what the younger generation does on the farm or in the business. That is not always wise. Young people need freedom to innovate and make mistakes of their own. A trust used to be a way for a family, handing on the farm, business or home to the oldest son, to ensure that in the event of a marriage split-up, his wife or partner would not end up with a share of the home, farm or business. Family law seems to have scuttled that idea and many would say that is a good thing.

Skip DIY when succession planning

Families, farms or businesses should obtain professional accounting and legal advice to determine what happens to the estate. They should learn whether or not it is possible and if so, how the estate should be structured. Each family situation is unique so this is not a field for DIY on the basis of a note like this or any other. “When in doubt, find out!”

Danger of trusts for succession planning

The danger in trusts, is profits distributed to family members to minimise tax rates, may not be paid out to the beneficiaries in cash. Rather, those profits may be reinvested. However, the money distribution belongs to those beneficiaries. Parents need to be aware of the risks of them using that money without written permission of the beneficiaries. Complexity can be a major disadvantage of a  trust deed. It can cost  more in legal and accounting fees to unscramble the trust structure than it did to set it up. The results may yield no tangible or financial benefits in doing so.

Sense of achievement

Rather than give the farm or business to the next generation it may be better for all parties to consider selling it to the children or one child. That way the child gains the satisfaction of obtaining the farm through their own efforts rather than as a gift. The parents benefit by having cash to spend after years of pouring it into the farm. There are very good ways of doing all of this without involving bank debt. This is fairer to children who are not involved in the handover.

Why try GBAC?

Big professional firms, firms associated with farm organisations, those associated with or funded by banks and those funded by and associate with government are not necessarily appropriate for succession planning  due to conflicts of interest. They are often very expensive. Succession planning should protect farmers from banks and government. Greg had managed transfers, succession of a major business from his grandfather and a farm that was settled by his great-grandfather, to his generation. Greg and Pat have both been involved in running a farm and a business as well as consulting. In a world of excessive greed, GBAC lets clients say goodbye to that greed and hello to good old-fashioned service. That is where the client comes first and foremost and always deals with the principals.

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