MGS Private provides advice on the concepts of present entitlement and specific entitlement in the context of trusts.
Present Entitlement:
Present entitlement refers to a beneficiary’s immediate right to receive income or distributions from a trust. Here are some key points:
- Definition: Present entitlement signifies that a beneficiary has a current legal claim to a portion of the trust’s income or assets.
- Tax Implications: When a beneficiary is presently entitled, they are liable for tax on the income allocated to them.
- Trust Law: Interestingly, the phrase “present entitlement” is not explicitly defined in trust law. However, case law has provided guidance on its interpretation.
- Interest in Trust Property: Beneficiaries with present entitlement have a direct interest in the trust property.
Specific Entitlement:
Specific entitlement is a narrower concept and relates to particular classes of income within a trust. Consider the following details:
- Trust Terms: Specific entitlement arises based on the terms of the trust deed. It can only exist if the trust explicitly designates certain beneficiaries as entitled to specific income or assets.
- Examples:
- If a trust deed specifies that certain beneficiaries are entitled to capital gains from the sale of trust property, those beneficiaries have specific entitlement to those gains.
- Specific entitlement can also apply to franked dividends or other specific income streams.
- Limitations: It may not always be possible to make other beneficiaries specifically entitled to income if the trust deed already designates specific beneficiaries.
In summary, while present entitlement encompasses a broader right to trust income, specific entitlement focuses on precise allocations within the trust. Understanding these distinctions is crucial for tax purposes and effective trust management.
For assistance or advice contact MGS Private.
