The Government has changed the definition of ‘family’ in the family trust election rules which will reduce the ability to nominate beneficiaries to a trust according to Deloitte Growth Solutions Tax Partner Spyros Kotsopoulos.

“Effective 1 July 2008, the family trust can only distribute to the children and grandchildren of the nominated individual and the children of the individual’s siblings,” said Mr Kotsopoulos.

“The limiting of beneficiaries means choosing the  nominated individual becomes critical and is likely to cause great distress to families trying to nominate one sibling over another.

“Income accumulated in old family trusts can no longer be passed through to great grandchildren without suffering an additional tax impost.

“Family groups may choose to wind up the trust and suffer the tax consequences if they wish to pass on benefits beyond the restricted family group.

Background

Any distributions outside the family group are subject to family trust distributions tax and who is in or outside the family group is determined by reference to a nominated individual. In 2007 the previous Government extended the family group to include lineal descendants of a nephew, niece or child of the nominated individual or the individual’s spouse.