A child maintenance trust (CMT) is a trust set up to provide financial support to a child or children, established by one or both parents, as part of a marriage breakdown settlement. A CMT may be established under an order of the Family Law Court as part of a divorce settlement.
What are the advantages of CMT?
- If properly structured, the income that is distributed out of the CMT to the children who are minors may be taxed at ordinary adult rates rather than the penal rates. This means that, assuming the child has no other income, the first $18,200 of income from the CMT would be tax-free.
- CMTs may be attractive to a parent who is taxed at the maximum marginal rate of tax and can arrange for income, that would otherwise be taxed to them at the maximum marginal rate of tax, to be distributed to their children to be taxed at ordinary marginal rates.
- The parent can satisfy their child maintenance obligation out of pre-tax income rather than out of after-tax income.