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Family trusts to be taxed in Finance Bill 2024

Kennedy Waweru by Kennedy Waweru
May 3, 2024
in News
Reading Time: 1 min read

The now publicly revealed Finance Bill 2024 has unveiled a significant change in family estate planning –
the taxation of trusts. This proposed measure seeks to subject the income generated by registered family
trusts to taxation, a departure from the traditional exemption they have enjoyed.

Trusts are legal entities established to hold assets on behalf of beneficiaries. They are commonly used for
wealth preservation, estate planning, and charitable purposes.

In the context of family trusts, assets are often transferred into the trust by a settlor (the person establishing the trust) for the benefit of family members or designated beneficiaries. One of the primary challenges posed by the proposed taxation of family trusts is the administrative burden it places on trustees and beneficiaries.

Trustees would be tasked with navigating complex tax regulations, ensuring compliance, and accurately reporting trust income to tax authorities.

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This increased administrative workload could strain resources and expertise, particularly for smaller trusts or those managed by individuals without specialized tax knowledge.

Moreover, the proposed taxation could stifle wealth creation and investment, potentially discourage
individuals from using trusts as a tool for financial planning.

Imposing taxes on family trusts may erode their effectiveness as vehicles for asset protection and intergenerational wealth transfer, ultimately hampering economic growth and development.

Should the Finance Bill pass into law, it could have far-reaching implications for families who utilize trusts
as part of their financial and estate planning strategies.

The taxation of trust income would likely necessitate a reassessment of these strategies, potentially leading to a re-evaluation of asset allocation, investment decisions, and succession planning.

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