Family Trust Elections (“FTE”) is a dreaded word for many small firms. The recent emphasis on the election has put many small firms into a conflicted position as to whether an election is necessary and what will be the consequence of this election for an existing family trust.
Simplistically, the limitations are that if there are franking credits being distributed to from the family trust, there needs to be an election in place once these exceed $5,000.00 in any one year.
We have recently assisted a small firm undertake a FTE structure for their client base, assess each of the trust clients and to identify any trusts at risk. Our review identified a number of risk trusts which led to the tidy up of all the trusts within the client’s practice.
Two issues that typically arise:
1. Where there has been distributions made outside of the family group (eg. a distribution to a cousin). Where the ownership of a company is less than 100% or where the intended member has already passed away at the time of the election, any distributions made outside of the family group can have significant consequences on succession or family planning.
2. Failing to nominate or nominating the incorrect person is a significant risk for small firms, especially where the impact would be loss of franking credits for a number of years. C&D can assist firms that are looking for guidance in this area, including undertaking an FTE project to mitigate any risk.