AUSTRALIA Law and Practice Contributed by: William Moore, Frank Hinoporos, Emma Woolley and Todd Bromwich, Hall & Wilcox
exist for certain family trusts, deceased estates and older trusts where the Australian resident has not had control since before 1989. The rules are focused on income that would otherwise not be taxed in Aus - tralia; they are complex and require careful attention to structuring, compliance and record-keeping. 3.4 Tax Consequences of Fiduciary and Beneficiary Roles While the concept of a US-style “irrevocable trust” is less common in Australia, discretionary trusts provide a similar function of asset protection and tax planning through their flexible structure. In Australia, the key roles of the trust are typically as follows. • The settlor provides the settled sum to establish the trust. The settlor is typically excluded from ben - efiting under the trust (to avoid adverse tax conse - quences). • The trustee makes the day-to-day decisions regarding the trust, including how trust funds are distributed. • The appointor can appoint and remove the trustee, and is therefore a key control role within the trust deed. • Primary Beneficiary: the trust has a class of general beneficiaries determined by their relationship to the Primary Beneficiary (including spouse, children, grandchildren and related entities). Modern Australian trusts are typically drafted to pro - vide a strong degree of flexibility via over-riding powers of appointment and extensive administrative powers (including powers to delegate, apply capital, alter the trust period and vary administrative powers). Assign - ing some or all these powers to those in fiduciary roles (ie, independent trustees or appointors, guided by a memorandum of wishes) can be effective in ensuring the trust remains adaptable.
protection through the establishment of a separate legal entity, shielding a business owner’s personal assets from business debt and liability. Unit trust structures may also be used, particularly for holding interests in real property. Shares in these companies (or units in a unit trust) are commonly held in a discretionary family trust, which is the most popular asset protection method. These structures separate legal from beneficial ownership, with family members receiving income or capital dis - tributions at the trustee’s discretion. This provides protection against creditor claims and flexibility in distributing business profits, and quar - antines family wealth from trading risks. A corporate trustee is typically used, offering asset protection and perpetual succession. While trusts provide strong asset protection benefits, they do not provide absolute protection. It is possible to unwind arrangements that attempt to defeat credi - tors or circumvent family law obligations. Nonethe - less, for most family business owners, a discretionary trust structure remains the standard and most effec - tive asset protection tool. 4.2 Succession Planning Business succession planning in Australia requires a tailored approach and the adoption of a number of strategies to achieve optimal outcomes. Where an individual holds business assets in their per - sonal name, testamentary trusts established through their Will are the most popular succession planning strategy, offering asset protection (against creditor and some family law claims), protection of vulnerable beneficiaries and some tax flexibility. Where assets are held through family trusts, it is nec - essary to consider passing control to the next gen - eration. This can be done by simple trust succession nomination or through more complex family agree - ments dealing with decision making, distributions, exit and dispute resolution. Bespoke succession planning constitutions are also increasingly common, allowing for the automatic
4. Family Business Planning 4.1 Asset Protection
In Australia, it is common for family businesses to be held through corporate structures, which offer asset
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