Our Government has once again in the 2011 budget thrown a spanner in the works by removing the low income rebate to minors on unearned income. This was clearly a strategy against the use of trusts to split income with minors and has now reduced the income that can be distributed to a minor, tax free, by about $3100.

If used in the correct circumstances a trust is a powerful vehicle. Clients and accountants need to take each situation as it comes and look at the pros and cons before setting off on the Trust road.

A far better way of looking at the use of a trust is to consider how long a business or the trust is likely to be “alive”. If the business or structure is to outlive the individual or individuals then the 80 year life of the trust makes it attractive. It could however leave the eventual beneficiaries with some significant headaches depending on legislative changes over time.

Tax should never be the diving force behind a business vehicle. It leaves both the client and adviser open to accusations of setting up a scheme to avoid or worse still evade tax although I’m not aware of that happening yet.

Similarly setting up a Trust with the specific reason of avoiding creditors could result in the structure being set aside and assets made available to the creditors in a bankruptcy situation. I’m told by an experienced liquidator that it is not a road they are keen to test but there may be a “soft belly” trust there someday that will not stand up to scrutiny.

Use them wisely and as the law currently stands today there can be great benefits available to users including longevity,asset quarantining and tax flexibility.