Paying tax within a discretionary trust

I'm thinking of creating a discretionary family trust.
Will a discretionary trust be useful in this simplistic proposal below?
I will keep it simple so the thread does not go off topic.

Assume a property is bought, for a discretionary trust.
Assume all the net income from a rental, is currently taxed at 19%, which
is below the tax rate of all the beneficiaries.

Would it be smart to pay the tax, within the Trust, then distribute the after tax amount to the beneficiaries?
Consequently the beneficiaries are not required to pay tax, on the after tax distribution?
True or False.

 

Un-distributed income within the trust would be taxed at 45%, not 19%.

Where did you get the 19% from?

Regards,

Jason

 

I believe this is false but I expect there are many twists and turns in the tax law. The basics are:

- Only funds not distributed by the trust are taxed in the trust.

- Funds paid out are taxed at the recipient's marginal tax rate.

 

19% refers to
ATO web site for deceased estates that have existed longer than 3 years
Tax rates - deceased estate

I was trying to keep things simple in my example .

where does 45% come from?

really just looking fo a true or false response if possible

 

Thanks Jason and mark

 

A discretionary trust and a >3 year deceased estate are completely different things.

Your statement is false. So are all of the assumptions.

 

Thanks trainee.
For tax purposes a deceased estate is treated as a trust.
Unlike a natural person or a company, a trust is not a legal entity in its own right, but a relationship between a trustee and beneficiaries. The trustee administers the trust property in the best interests of the beneficiaries.
Trust tax return instructions 2018

I knew things would get off topic !

 

Ok have fun.

 

It seems like you are trying to convert a deceased estate into a discretionary family trust without dealing with the cost of transferring assets from one to the other. They are not the same and cannot become so. A trust requires a trust deed and a deceased estate has to be distributed by law to either the beneficiarys detailed in the will, or if intestate, according the intestacy law.
The only "out" I see is if the will provides for a testamentary trust but that is not a discretionary family trust.

 

No thats incorrect for deceased estates if you follow the link.
read the link then tell me where I have misunderstood.Thanks for your reply Mark

 

Is there a testamentary trust in existence or just a Deceased Estate pre-probate?

Do/can trusts pay tax? (usually taxed in the hands of the recipients).

 

I think the bit you are missing is that unlike a discretionary trust the deceased estate has to distribute according to the will and has no discretion in how any income or assets are divided among beneficiaries.

PS - there are times the ATO, Centrelink etc will see through the unwillingness to wind up a deceased estate.

 

Maybe I shouldn't have have used the word discretionary, but the ato treats the estate as a trust for tax purposes.
We want to sell the property but the market has dropped substantially.it seems to me the beneficiaries can sell the property whenever they like but , from what you write that may not be true. I sus.pect you are correct
Can you elaborate? after all its our property so why can the ato dictate a sale

 

I have had the recent experience of a relative being assumed to have become the owner of a rural property despite the estate not having been settled in just over two years since the death.

First off, until probate is granted and the estate distributed it is NOT your property. To do what you plan would require the agreement by all the beneficiarys and they could change their mind any time. There can also be be issues with the delay between death and application for probate. You certainly need to deal with creditors of the estate and lodge for probate in a timely fashion.

 

Probate completed.no creditors
Mark could you elaborate on your comment of
PS - there are times the ATO, Centrelink etc will see through the unwillingness to wind up a deceased estate.

 

An estate is a trust but there are differences in its tax treatment to a discretionary trust

 

Not able to comment much beyond what I wrote due to privacy considerations.

Also consider that CGT is not levied if the property is sold and settled in the estate within two years of the death. I suspect this may be more important than any other tax benefits. Or has that boat passed?

 

yep the unfortunatly boat has floated due to stubbornness on some beneficiaries parts.

Mark Could you list 3 major differences to discretionary trusts?
some I can think of
I am aware of different tax rates depending on how long the deceased estate has existed if funds are held within trust.
All net income is distributed equally in this case with agreement needing to be reached by all regarding disposal, as there is more than one executor.