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FAMILY trust income that is distributed between family members on paper but that is never actually withdrawn from the farm account could destroy intended succession plans, according to Mildwaters Byrth Lawyers and Conveyancers.
These distributions, to mum and dad for example, are often made to minimise tax, but the trust is actually accumulating a debt to mum and dad, because the money legally belongs to them.
“The crisis hits when mum and dad pass away,” lawyer and principal Kylie Mildwaters says.
“If their wills simply leave the farming interests to the farming child and then the remaining assets to the off-farm kids equally, this could mean the debt the trust owes mum and dad is left to the off-farm kids.
“Suddenly, the farming child who’s been working the land for decades faces a choice: find the money to pay out the trust debt to mum and dad’s estate to pay out their off-farm siblings, or possibly lose the farm.
“We’ve seen this destroy families — the farming child feels betrayed, thinking their parents changed their minds about the succession plan, and the off-farm children feel entitled to their share.
“It can also lead to farming families not appreciating the benefits of a trust structure, which is unfortunate because if managed properly, the trust structure is extremely beneficial for tax and succession planning reasons.”
Mrs Mildwaters says this issue lurks in virtually every family trust structure Mildwaters Byrth Lawyers and Conveyancers has reviewed across Yorke Peninsula.
“If you’re part of a farming family with trust structures, this issue needs to be on your radar,” she says.
“The longer unpaid distributions accumulate, the bigger the potential problem becomes.
“We’ll work with your accountant to identify any hidden issues and create solutions that protect both your farm’s future and your family’s relationships.
“Discovering these issues in your trust structure can feel overwhelming, but these problems are fixable.
“The key is addressing them while you have time and choices, rather than leaving them for your family to discover in grief.”
Ready to ensure your farm succession plan will actually work?
To schedule a comprehensive review of your family trust and succession planning, contact the Mildwaters Byrth Lawyers and Conveyancers Kadina office on 8821 2199 or Minlaton office on 0448 725 447 or for more information go online to mildwatersbyrth.com.au.
