Whilst asset protection is also the purpose of Corporate Trusts, efficient tax planning and business succession aspirations are key motivators in establishing Corporate Trusts.
Here we look to separate the Business Assets from the Family Assets. A Corporate Trust should hold shares in a Private Company therefore allowing dividends to pass to this Trust, which in turn can be distributed to the Trusts Beneficiaries. It will also allow the growth of the Company to be retained within the Trust and not to the former shareholder which presumably was you.
FOR PERSONAL ASSET PROTECTION
The protection offered by a Business Trust goes a long way in moderating and mitigating any potential unforeseen circumstances that may occur in the ever-changing business landscape.
FOR BUSINESS ASSET PROTECTION
A Corporate Trust allows business owners to move their shares in the business into the trust thus ring fencing them and offering them the protection of a trust structure. Business assets are separated from family assets in the event of business or legislative change and it is the business assets alone that are vulnerable to claims.
Also, if the shares in a new company are transferred to a Corporate Trust, the value of the transfer can often be minimal and the Corporate Trust will own the future growth in the share value. Upon retirement or sale of the business, the value of the asset is in the Trust where it should be.
FOR BUSINESS SUCCESSION PLANNING
A properly constituted buy sell agreement, correctly documented and supported by appropriate life and disability cover and ownership of the shares held in robust Corporate Trusts will allow for an ideal succession plan to occur. A Corporate Trust assists in facilitating this process for business owners and providing the necessary pillars should any mishaps occur.
FOR TAX EFFICIENCY
Corporate Trusts can play a prominent role in providing an efficient tax outlay. Often a principal business operator will be paying tax at the highest rate. In general terms, dividends flowing from a Company to a Corporate Trust in which a family trust is a beneficiary may allow the income from the company to be split amongst beneficiaries of the family trust who are taxed at lower rates. Usually transferring assets to a Trust requires a lengthy gifting programme. This can be dramatically shortened if dividends in the Company are capitalised, and used to repay the debt to the settlor.