With changes in legislative compliance, especially for income-earning trusts, whether to keep the trust in place is a question being commonly asked. The answer to almost every legal question is, ‘it depends’ and that is certainly true here.
Firstly, we need to consider why the trust was set up and whether those reasons are still valid. Sometimes, the only reason a trust was set up was because a friend suggested it. Even in that case though, it doesn’t mean the trust should be wound up now.
There are currently three main reasons to have a trust:
- Protection of personal assets from business risk,
- Keep family assets for family members through multiple generations and
- To provide a robust management structure to help manage family special circumstances,
In the past, other reasons might have included:
- Protecting assets from relationship property claims
- Tax planning
Where business risk was the reason and the business has been sold or shut down, it could well be that the trust has served its purpose and can be brought to an end. That is not the only consideration though as new factors may now be relevant.
If a trust is or has been income-earning, we need to understand if there are any tax implications in winding up.
If any beneficiary of the trust is a tax resident of another country, the tax implications in that country need to be assessed before any distribution is made from the trust.
As we noted at the start, it really does depend. We would be happy to chat to you about your trust and the pros and cons of bringing it to an end. We won’t make the decision for you, but we will ensure that you have all the relevant information to make the decision yourself.