Child Maintenance Trusts

Raising kids is an expensive business. And things can become even more expensive if you have been involved in a family breakdown.

Are you paying child support or maintenance?

A Child Maintenance Trust may be the answer.

What is a Child Maintenance Trust?

A Child Maintenance Trust (CMT) is a legal structure that allows payments on behalf of your children.

A CMT holds assets for the benefit of your children. Income created from the trust property can be paid to you children (or their guardian) to cover maintenance.

Your children can access the trust funds when they reach “vesting age”.

Who can set up a Child Maintenance Trust?

You can set up a CMT if you have been involved in a family breakdown and you have legal obligations to pay maintenance to (or on behalf of) your children.

The Income Tax Assessment Act defines a “family breakdown” in broad terms. A “family breakdown” generally relates to the end of a domestic relationship (such as marriage or de facto relationship).

You do not necessarily need to be divorced to be in a family breakdown – you may just be separated.

A CMT can also apply where children are born outside a domestic relationship.

Both parents have to agree to the CMT. This is usually negotiated as part of an overall property settlement between the ex-partners.

To receive the tax benefits of a CMT, the payments must be required to be made as the result of a court or administrative order.

Why set up a Child Maintenance Trust?

For many people, a CMT is a tax-effective way to pay child support.

If your children are minors (ie: under 18) and are not in full time employment, they will have a much lower tax-free threshold than you. And they will not have access to the graduated marginal tax rates that adults enjoy.

This means your children will be taxed at the top marginal tax rate for any income apart from wages (such as interest, dividends and payments from a trust).

But, if payments are made through a CMT, the income is classed as “exempted trust income” for the purposes of the Income Tax Assessment Act 1997 . This means the trust income is taxed at the same rate, and with the same tax-free threshold as adult income.

A CMT is also a good way to set aside assets for your children. That way you can make sure your children will be provided for, even though your family has broken down. This kind of arrangement means that all parties are clear about the financial support you will provide your children.

The trust assets are also protected from external creditors if you become bankrupt.

Investment of trust property

You may also be able to use the trust assets for commercial purposes, as long as the arrangements are entered into on an “arm's length” basis. That is, you cannot invest a small amount of funds to derive a large income flow.

The Commissioner of Taxation will assess the income derived from CMT arrangements. If the trust is not administered correctly, the trust income may not receive the tax benefits you planned for.

You should speak to your lawyer and financial advisor before considering the investment of trust funds.

What do you stand to save?

Currently, a minor who is not in full time employment can only earn $416 before their income is taxed. Every non-employment dollar they earn over $416 will be taxed at a whopping 48.5% (including the Medicare Levy).

If payments are made through a Child Maintenance Trust, however, your children can earn $6,000 in child support payments before they start paying tax. The remaining income will be taxed in the same graduated way that adult income is taxed. You can make substantial tax savings in this way.

For example, if child support is $15,000 each year without a Child Maintenance Trust, you would have to pay approximately $14,000 in tax. That would make a total of about $29,000 each year. But if the same amount ($15,000) is paid through a Child Maintenance Trust, the tax liability is only approximately $2,000, making a total of about $17,000. In other words, you stand to save $12,000 in tax each year.

If you have obligations to make payments to more than one child, over a number of years, you can make large potential tax savings by using a Child Maintenance Trust.

Is a Child Maintenance Trust for you?

The initial property settled on a CMT should have a value of at least $300,000.

Therefore, setting up this kind of trust can be of great benefit to you if you earn over $80,000 and hold other assets. The funds settled on the trust can be borrowed, as long as you eventually repay the capital and hold the funds for the benefit of your children.

A CMT will be particularly useful if you are required to pay child maintenance for a number of years. And if you have more than one child, the benefits can be substantial.

It is important that you and your ex-partner both agree on the establishment and functions of the trust. Make sure you get independent legal and financial advice before setting up a CMT. There is a lot of money – and your children's finances – at stake.

At Watson and Watson, we have the experience to guide you through process of setting up a child maintenance trust. That way, even though you have been through a family breakdown, you can rest assured that your children will be provided for. And you'll be glad to know your payments are going to your children, not the taxman.

Please note that our provision of any telephone advice to you is only a general discussion to assist as to whether you wish to instruct us. Telephone discussions should not be construed as legal advice and are not to be relied upon. Legal advice which you can rely on can only be properly provided by us to you at or following an initial conference. We are not responsible for any action you may take or fail to take based upon the provision of our telephone advice to you. If you wish to arrange a conference, please contact us.

Online enquiry form

Watson & Watson are always available to provide expert legal advice and answer any questions you may have.

Name:	*
Email:	*
Phone:	*

Please send me advice on:

Building & Construction Law
Family Law
Commercial Litigation
Conveyancing
Criminal Law
Insolvency/Bankruptcy
Wills & Probate

Comments:

Recent Cases

Family Law Property Division - 30/09/2010

Watson & Watson acted on behalf of the Wife. There was a long marriage of approximately 20 years and there were significant assets, however, there were very substantial debts and the total net assets...

Testimonials

7/11/2011

Many thanks for all your support in securing our unit. We very much appreciate your help. Kind Regards.
- M & C, Hills District

1/11/2011

Absolutely fabulous Lelien, we are definitely keen on this strategy. Very happy with your process so far. Many thanks again.
- R.E, Sydney

9/10/2011

"Thank you for your email and effort to help me... I do not know what I would have done without you."
- K.S, Byron Bay

2/10/2011

"Thanks for yesterday, great advice and some more clarity in my mind on how we will be proceeding."
- P.B, Sydney

29/09/2011

"Richard. Many thanks. We are very appreciative of the professional assistance given to us in relation to our claim for defective building works. With your professional help we were able to come to a satisfactory resolution to our long standing problem"
- J.H, Gosford

20/09/2011

"Many thanks for all the work & effort you have done to help us secure our unit. We very much appreciate the time you have taken."
- M.C, Sydney

22/07/2011

"I am personally grateful for the effort put into this by all concerned. I do believe the issues have been thoroughly aired and we can now finalise the matter."
- J.T, Sydney

18/07/2011

"To Chris Jefferies,
We wish to thank you for the efficiency you have displayed in the Conciliation Conference and for settling the matter for us."
- Holden Barlow Solicitors, Perth

28/06/2011

"Thanks again for all your help. You've been an absolute delight to deal with."
-B.M, Sydney

3/06/2011

"Dennis, Thank you for your advice and taking my case in this matter. Peter has spoken so highly of you."
- S.Y, Sydney

26/05/2011

"Dear Dennis,
Wonderful news!
Thank you kindly for your great work, I am so very pleased and thrilled with the result.
My life is so much brighter and we can stay here in Australia.
All my family are grateful and so happy."
- L.S, Sydney

25/05/2011

"I would also like to acknowledge all Dennis' expertise and hard work."
- P.L, Sydney

17/05/2011

"Just to say a big thank you for today! I am delighted with the result."
- J.M, Eastern Suburbs

11/05/2011

"Dennis,

I am writing to send my deepest thanks for yesterday's outcome. Your efforts in pressing the case have been nothing short of magnificent.

I have been (in part) of a mind set that defeat and rejection was to be my soul mate on this issue. But yesterday's fine transition from nothing to something is such an incredibley happy outcome. Your considered opinitions, general care and legwork, as a commmiteed and compassionate advocate will stick as a life long memory. I feel extremely fortunate and proud of what has been achieved.

I understand too, with the joy comes the responsibility. The message of dilligence is not lost and is branded into the forefront of my mind.

Yours in sincere thanks."
- D.G, Sydney

11/05/2011

"Excellent! Progress. The ball is in your court. Congratulations."
- M.D, Sydney

4/05/2011

"Despite trying very hard to come to amicable agreement we found ourselves in the dreadful position of constant intimidation correspondence from the solicitors of the buildings who undertook residential renovations. As a result I instructed Richard Watson to act in the matter. It turned out that having a firm of solicitors highly experienced and qualified in the very complex area of building law proved essential and indeed saved the day. This together with their kindness and open and honest frankness made something that was looking impossible into a great success."
- M.N, Eastern Suburbs

21/04/2011

"The letters to the solicitors on the other side are perfect. Please send it."
- C.F, Lower North Shore

20/04/2011

"Thank you very much for you have done job for me!"
-S.L Parramatta

31/03/2011

"We greatly appreciate the efficiency and also the time to see us the Tuesday night before we exchanged contracts. We moved in on the weekend and are very happy."
- PB-H, Lower North Shore

29/03/2011

"I appreciate the professional assistance given."
- D.D, South West Suburbs

4/03/2011

"You have been wonderful and worth every penny."
- P.H, Canada

4/03/2011

"I'd just like to say a big thank you!
I appreciate your help and patience throughout."
- J.F, Eastern Suburbs

21/01/2011

"Thank you, thank you, thank you."
- Z.H, Sydney City

1/12/2010

"I found myself in a difficult situation and was fortunate to engage Richard Watson of Watson & Watson. Richard helped explain the options and alternatives available to me and the likely outcomes having regard to all matters to be taken into account. Richard helped me come to a very satisfactory resolution of the matters and as a result I have been able to secure accommodation for myself and children in the local district in a relatively short period of time. In addition to the advice as to the various alternatives, options and likely outcomes I found Richard caring.

Throughout when things were difficult Richard was a steady influence so that I could achieve the optimum outcome for all concerned. I recommend Watson & Watson for any other person in similar circumstances. "
-S.J.G Cremorne

1/11/2010

"Just would to wish you a very Merry Christmas. I will never forget your kindness and generosity - and strength at times I feel you worked with the mighty Lord - quite testifying!
I have so much gained from the experience in many ways."
Best Wishes and Many Regards,
-R.L

1/08/2010

"Hi Richard ,
This is just a brief note of thanks for taking care of me through this horrible situation.
I know you are a pro but for those of us that are faced with the reality... it's scary & sad. "
Best Regards,
-D.T

1/08/2010

"I was in a position that I had exchanged on the purchase of a property and I had agreement from my ex for funding the purchase, however, after I exchanged to purchase, my ex changed his verbal agreement. I came to Watson & Watson as my daughter had received a very good outcome with understanding. Watson & Watson in a very short period of time achieved a cost effective settlement which allowed me to complete my purchase. Their experience relating to various alternatives gave me other alternatives and allowed me to conclude the finalization of the property matter with my ex and the purchase of the property in a very short period of time and to my utmost satisfaction."
-K.S Leura

1/07/2010

"Watson & Watson have performed exceptionally in a cost effective manner for the Bank for in excess of 20 years and never recovered less than expectations. Their work is professional, cost effective and always above expectations. In all my years with Watson & Watson the Bank has only lost one case and that was the first case in which I was at the Bank instructing another solicitor for the Bank and Watson & Watson acted for the customer against the Bank, our solicitor lost, Watson & Watson acting for the customer against the Bank WON."

"I have been instructing legal firms in relation to litigation and recovery actions for the Bank for more than 20 years. Richard Watson and his team are result driven. The costs on a case by case basis is significantly less than other firms which I instruct from time to time on behalf of the Bank."
-H.B Bank Sydney

1/06/2010

"Dear Richard,,
Many thanks for all that you have done.
It is been a fantastic result."
Thank you
Best Wishes"
-R.L Surry Hills

31/05/2010

"My family bought property in the 1950's and registered it in the name of my brother. My brother assumed ownership of the property. Nothing was done until Richard Watson became involved and the matter was settled with a substantial payment to me, more than doubling my ample wealth."
-L.S Canberra

1/05/2010

"I was concerned as to the costs of the process. Watson & Watson are focused on results and means by which I could provide information required which assisted in a cost effective resolution. Watson & Watson assisted in identifying the issues, alternatives and options and what was the best way to resolution."
-R.B

1/02/2010

"I went to two other solicitors and then Watson & Watson before making a decision. Watson & Watson raised issues that other solicitors had not thought of. Richard Watson explained clearly issues relating to spousal maintenance that may arise now and in the future and a method of protection from future claims. Not only did Watson & Watson deal with the immediate needs but took steps relating to protection in the future and advice in relation to estate and other matters following the break up of my relationship. I have recommended Watson & Watson for others int he unfortunate position of break up of their relationship."
-A.L Pymble

+ Read more testimonials