Financial Planner Service Trust Agreement

Financial Planner Service Trust Agreement

$220


Financial Planner Service Trust Agreement

It is common practice for financial planners to use a service trust (service entity). A service trust is often a:

1. Family Trust – if just one financial planner (ASIC & your Dealer group normally require a company as trustee)

2. Unit Trust – if 2 or more financial planners (ASIC & your Dealer group normally require a company as trustee)

3. Company – not common as profit is trapped and no CGT relief. But useful if you have no family because of the 30% tax rate

Build these 3 types of service trusts on our website.

The service trust is a second business. The service trust provides services to the financial planning firm. It charges a fee for providing those services. Service trust profits are shared with the financial planner’s spouse, children and family. They pay tax at a lower marginal tax rate. Therefore, the service trust saves tax. It helps with superannuation benefits and the spreading of income to family members.

But it is not enough to have just a service trust. You need the agreement between the financial planning practice and the service trust. This agreement is called a Financial Planner Service Trust Agreement. The Service Trust Agreement is a contract. It allows the service trust to supply equipment, staff, receptionist, tools, machines, premises and administration services to the financial planning firm.

Service Trust Agreements are also popular for:

1. Other professionals such as lawyers, doctors, dentists and accountants that can’t otherwise share profit easily.
2. Asset protection – one entity holds the high-risk activities (employees, tenancies & advice) the other keeps all the ‘good’ assets (land, intellectual property) in a low-risk entity.
3. Companies wanting to liberate wealth and move profit into a trust structure. Unlike a company, the service trust can access the CGT tax concessions. Therefore, the service trust often holds appreciating assets. These include real estate, franchises, copyright and ‘leased out’ business names.

Where is the tax advantage?

The service trust is a business. Via the Financial Planner Service Trust Agreement, it provides services, for a profit, to the financial planning firm. The services are provided at ‘market rates’. This is required by the ATO TR 2006/2. The service trust then distributes the ‘profit’ it makes. This is from running the business. The profit goes to the non-working spouse, children and other taxpayers at a lower tax rate.

Example

The financial planning firm brings in revenue of $1.6m. The Service Trust provides services to the financial planning firm. The Financial Planner Service Trust Agreement sets out the services.  Services include cleaning the office, providing secretaries, staff, computers, marketing, office lease and bookkeeping. The service entity owns the equipment and employs the staff.

The Service Trust (via the Service Trust Agreement) charges the financial planning firm $1.4m in fees. 

By providing these services the Service Trust makes a profit of $0.8m. (This is after it pays its expenses of $0.6m.) That profit is distributed to the financial adviser’s spouse, children and other trust beneficiaries. 

The financial planner can’t share ‘personal services income’. However, the service trust ‘income’ is not personal services income. This is because the service trust is a separate business to the financial planning practice. The service trust operates on an ‘arm’s length basis’. Therefore, the income is distributed to the spouse, children and other beneficiaries related to the financial planning firm’s partners.

Independent Contractors Agreement

A Service Trust Agreement is a type of Independent Contractors Agreement (‘contract for services’).

The principal (financial planning firm) requests and pays for the services. The person providing the services is the contractor (service trust). The agreement between the principal and contractor is the Financial Planner Service Trust Agreement.

The contractor is ‘independent’. The contractor is not an employee of the principal (financial planning firm).

What should the Service Trust charge?

Your accountant, each financial year, tells you what to charge. The Service Trust Agreement allows for this. You charge ‘market rates’. Treat the service trust as a separate non-related business. The Service Trust Agreement allows the service trust to provide many services, including:

(a) plant and equipment (desks, chairs, machines, tools and equipment)

(b) employing the staff (build the Employment Contracts here)

(c) consumables

(d) the premises

(e) budgeting, forecast, bookkeeping, accounting and debt collection services (build Letters of Demand and Writs here)

(f) marketing, corporate design and identity and brand awareness

(g) additional services — as agreed by the parties from time to time

How do I update the Financial Planner Service Trust Agreement?

The Agreement is updated by an exchange of emails. Add more services as your accountant suggests. You can add a scope of work, plans, diagrams and specifications.

The Service Trust Agreement is silent on what it charges the financial planning firm. So that is never out of date. Your accountant advises you on what the appropriate charges are during the financial year.

Contact us for more legal advice

You are building your legal document on a law firm’s website. Telephone us if you need a hand building this document.

Adjunct Professor, Dr Brett Davies,  CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers & Solicitors
Australia wide law firm
Mobile:       0477 796 959
National:     1800 141 612
Email:         [email protected]
Skype:        brettkennethdavies

See also:Law firm Service Trust Agreement

Dentist Service Trust Agreement

Accountants Service Trust Agreement

Financial Planners Service Trust Agreement

service trust agreement

Independent Contractor Agreement

25/01/2018

Financial Planner Service Trust Agreement

Financial Planner Service Trust Agreement It is common practice for financial planners to use a service trust (service entity). A service trust is often a: 1. Family Trust – if just one financial planner (ASIC & your Dealer group normally require a company as trustee) 2. Unit Trust – if 2 […]