In the event that a trust is created by way of settlement, it is recommended that a settlor should be a person who is not related to any of the beneficiaries, due to the application of s 102 of the ITAA 1936. Section 102 specifies the circumstances in which the Commissioner may hold a trustee liable to pay tax at the settlor’s marginal rate of tax.
Section 102 applies:
- where income is distributed to a child of the settlor who is under the age of 18. The objective of this was to prevent high-income earners from diverting their income to low income family members, where they effectively keep the control of the income
- where the settlor has the power to revoke the trust
Therefore, in order to avoid the possible application section 102, the settlor of the trust should not be a parent of any of the beneficiaries and the trust should be irrevocable. The settlor of a family trust should be a person who is unrelated to the family or for whom the trust is being created.
You should have your Trust Deeds reviewed at least yearly – if you require any services in this request or advice on family trusts, the lawyers at The Quinn Group can help. Contact us on 02 9223 9166 or submit an express online enquiry.