Passing the baton -trusting into the future

It is important to ensure that the sibling who runs the business is able to do so, but also to ensure that (after the company-provided Porsches for that sibling and spouse and the overseas trips have been taken into account) there is something left for dividends.

6        Family trust elections

The existence of family trust elections (FTEs) or interposed entity elections (IEEs) or, alternatively, the need to create them as part of inter-generational structural planning underscores the need for a thorough investigation of all relevant facts and circumstances regarding a family structure before starting the planning process.

Advising on the implementation of a plan may be an appropriate time to consider whether an election was necessary or desirable in the first place and whether the opportunity should be taken, if the circumstances permit, [28]  for that election to be revoked or varied.

From a succession planning perspective, the 2007 amendments which broadened the definitions of family group and family [29] (having survived threatened emasculation in 2008) mean that the potential “downward sweep” of qualifying beneficiaries now encompasses all lineal descendants of the family of the test individual, plus their spouses, former spouses, widows, widowers and step-children. The previous concerns of succession coming to a grinding halt if a family trust election was made no longer exist.

In terms of “upward sweep”, it should be remembered that a family trust election extends no higher than the grandparents of the test individual. It appears that in future there is likely to be an increasing number of great grandparents. If, therefore, part of a succession plan involves the making of a FTE (for example, if it became necessary to roll a business owned by the trust into a company and a FTE was necessary to ensure the flow-through of franking credits) care should be taken as to whom is nominated as the test individual.

The scheme of Schedule 2F is broadly to contain the conferring of present entitlements to, or distributions of income and capital within the family group.[30] Where FTEs and IEEs exist, so long as planning is undertaken with those limitations in mind the process, should be uneventful.

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