Trusts have been around for centuries, and commercial law embraces them as a legitimate means to operate a business. Whilst there are many types of trusts, the one type that you are most likely to see used for businesses is a discretionary trust.
A discretionary trust operates on the basis that it has discretionary beneficiaries. These are the individuals and companies that may receive capital and income from the trust at the discretion of the trustee. Discretionary trusts have several benefits within the realms of running businesses, and here are ten of the most important.
Flexibility: One of the most cited reasons for using a discretionary trust to run a business is its flexibility. Trust deeds can now be amended to add or remove beneficiaries without any implications for stamp duty. It also allows the trustee to amend the trust deed to take account of new tax legislation and other laws, such as commercial law.
Tax Streaming: This is the legitimate practice of the trustee deciding each tax year, who to distribute the trust’s taxable income to. By streaming income proportionately to specific beneficiaries, especially those in lower tax brackets, and those who have had a capital loss, it reduces the amount of tax paid by the trustees across the board.