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An Argyle Hybrid Trust
The Argyle Hybrid Trust is a popular and tax-effective vehicle through which a family or specific individual can:
· gain significant asset protection benefits · gain direct assessable income from underlying trust investments; · provide a tax effective income stream to family members through connected and consistent estate planning measures · hold equity interests in private business enterprises · conduct a private investment portfolio; · provide tax planning benefits. The Argyle Hybrid Trust has features of a discretionary trust coupled with a direct and fixed stream assessable income to specific beneficiaries which enables efficient estate planning, asset protection planning and tax planning for a family. These benefits are highlighted below.
Asset Protection
The Argyle Hybrid Trust has many of the same asset protection benefits as a traditional discretionary trust subject to any specific rights of a beneficiary, or beneficiaries, to a fixed income stream. These rights are an asset of the beneficiary that holds them. Also, subject to the operation of specific rules in legislation such as the Corporations Act and the Bankruptcy Act, acquiring and accumulating assets in the Argyle Hybrid Trust, like the discretionary trust, can protect those assets from any commercial risks that may otherwise face the beneficiaries of the trust.An individual is a person at "commercial risk" if, for example, they personally have financial exposure to creditors (eg they have loans in their own name or have guaranteed the loans of others) or if they may personally suffer legal actions being brought against them for negligence (eg professional persons), breach of duty as company director and the like. Assets owned by an individual who is at commercial risk can be made the subject of claims brought against that individual by the trustee in bankruptcy or by a plaintiff with a legal action. Assets owned in a discretionary trust can often be protected from these claims.
The nature of a discretionary trust is unique in that none of the discretionary beneficiaries of the trust have any entitlements to any of the assets of the trust nor to any income of the trust unless the trustee of the trust exercises its discretion in their favour or, as is the case with the Argyle Hybrid Trust, a fixed income entitlement exists under the trust terms. This fundamental feature of a discretionary trust is essentially why the Argyle Hybrid Trust is such an effective asset protection vehicle.
Estate Planning
The Argyle Hybrid Trust can dovetail into a client’s personal estate planning to achieve excellent asset protection and tax planning benefits for beneficiaries of an estate. That is, a beneficiaries fixed entitlement to income from the Argyle Hybrid Trust can be passed to estate beneficiaries to provide an income stream in a tax-effective manner, for example, by properly utilising testamentary trusts as an estate tax planning strategy.This not only gives comfort to a beneficiary that their family members will be given the security of receiving an assessable income stream but it is a means of accessing the benefits of trust assets which would not ordinarily form part of an estate after their death.
Income Stream
The Argyle Hybrid Trust has the facility to provide certain beneficiaries with an assessable income. This feature can be important in providing a beneficiary with certainty of income from their investment in a discretionary trust. That is, the beneficiary entitled to this income stream is not subject to the exercise of the trustee’s discretion with respect to this income.Like any other investment a person undertakes in order to obtain an assessable income the beneficiary entitled to the fixed stream of assessable income from the Hybrid Trust should be entitled to claim deductions for any losses or outgoings incurred in obtaining the assessable income, such as interest incurred by the beneficiary on any loan taken in order to make the investment.
Tax Efficiency
Current Australian tax laws offer significant tax benefits for investing through a properly structured Hybrid Trust. In summary these benefits are:
· the beneficiary entitled to a fixed distribution of assessable income is able to claim tax deductions for losses incurred in gaining or producing that assessable income · flexibility for income distribution among the defined class of beneficiaries (sometimes called "income splitting") subject to any fixed beneficiary entitlements · potential for distributing different classes of income to different beneficiaries (sometimes called “income streaming”) to ensure that the different tax treatment applied to different class of income is best utilised by the beneficiaries again subject to any fixed beneficiary entitlements · · potential for the CGT small business concessions to apply · tax exempt income and concessionally taxed capital gain to be distributed in a manner which maintains the tax-free status of that income · capacity for loans to be made to beneficiaries tax-effectively and in a flexible manner If you would like further information click here to e-mail our Tax and Superannuation Team.
