Tax Tip 257: Family Trust Elections and Estate Planning

When making a family trust election (FTE) careful consideration should be given to the potential future estate planning effects, especially on the death of the test individual.

For a quick summary of FTEs see:

Tax Tip 255: What is a Family Trust election? Tax Tip 255: What is a Family Trust election?


Example

Homer sets up Trust A to do different things such as invest in shares. A FTE is made with Homer being the nominated Test Individual.



Homer dies, after falling off a horse.



Bart takes over control of Trust A. The test individual is still Homer and cannot be changed.

Bart starts up Trust B a while later. It might be used to hold property or a business and runs at a loss. Bart wants to distribute the income from Trust A to Trust B to help use up the loss and to save tax.

Trust B would need to make sure it is in the same family group as Trust A, but it cannot nominate Homer as he is dead (Subsection 272-80(3) of Schedule 2F to the ITAA 1936), only living persons can be nominated.


Planning ahead they might have nominated Bart as the test individual of Trust A


See

Subsection 272-80(3) of Schedule 2F to the ITAA 1936 INCOME TAX ASSESSMENT ACT 1936 - SCHEDULE 2F Trust losses and other deductions

and

ATO ID 2014/3 Family Trust Election: individual specified in election is deceased when election made
https://www.ato.gov.au/law/view/pri...1231235958&Life=20140205000001-99991231235959

 

Thanks @Terry_w. Always find these tips interesting.

Just wondering when or if Selma or Patty are ever going to get a look in though.

 

Thanks Satayking, I was running out of characters to include. I was almost going to go the Southpark route, but will be able to hold off for a while now.

 

Patty and Selma make poor subjects. They barely work and have no (stable) partners. I kinda suspect at least one defacto issue may be kept silent.

On the issue of making Bart a test individual the issue I would see is a minor cannot satisfy the control test. There are also limits as you run deeper to the family tree. I recently explored why / how a child may make a better test individual but this issue was the limiting factor. The problem with parents is taking a punt on who may live longer. I'm not convinced that a child is the solution. I wish the FTE had a death option which allowed a spouse from the same family group to be eligible for appointment when death of their spouse occurs. Its not that Bart cannot be the test individual. However there are some complications.

I require clients to get legal advice on the issue of test individuals for this very purpose. In my opinion it is a complex issue needing legal advice. Its far more than just tax advice.

 

More than likely but it'd be interesting if they were nominated as guardians for Bart et.al.

 

Ay karumba

 

If bart was the nominated test individual any distributions made to selma or patty would be subject to family trust distributions tax

 

With around 100 characters from various episodes you have a plethora to choose from.

 

A family trust election can be varied in certain circumstances.

 

Does the test individual need to be a living person or can it be a company?

 

A company isnt an individual