Modelling Trust Distributions

Castaway can be used to forecast many types of business structure, including companies, trusts and partnerships. When you create a new forecast, Castaway starts with a company structure by default. This article guides you through the changes needed to model a trust structure.

To model a trust in Castaway, we need to make several changes from the default forecast:

1. Remove tax on profits (e.g. income tax, company tax, corporation tax)
2. Create Equity elements for trust beneficiaries
3. Set up the distribution of trust profits
4. Rename reports to suit trusts
5. Remove unnecessary Inbuilt Formulas from reports

To save time, a sample file with the above changes have been attached to this article. It assumes 2 beneficiaries, each receiving 50% of the trust surplus. Of course, you can tailor this model to suit your own circumstances.

1. Remove tax on profits

The default setting for the Income Tax Method (i.e. Corporations Tax in the UK) is set to Taxable Income. Castaway allows you to turn off the automatic calculation by changing its settings. 

You can do this in 2 ways:

1. While setting up a new forecast, set the Income Tax Method to 'Exempt' in the setup screen
2. With the forecast open, go to the Forecast workspace and click on the Income Tax element Profit and Loss then set the Income Tax Method to Exempt

2. Create Equity elements for the trust beneficiaries

Create new Equity elements for the beneficiaries that profits will be distributed to.

Assumption:

• This trust distributes its profits to 2 beneficiaries

Steps:

1. Create a new Forecast
2. Go to Forecast workspace > Element Settings
3. Scroll to the bottom of the Balance Sheet in your Chart of Accounts and locate the Equity section
4. Add the 2 new equity elements by clicking on the E shield
5. Rename the elements to the respective beneficiaries
   
6. For each new beneficiary account created, change the Balance Sheet Reporting setting to General Equity to group them under the same heading
   

3. Set up the distributions of the trust profit

To set up the model to automatically distribute profits to Beneficiary 1 and Beneficiary 2, we will use transfers from the Dividend element to the Equity elements.

Assumptions:

• Profits will be distributed to Beneficiary 1 and Beneficiary 2 equally
• The profits will be distributed in the month of June

Steps:

1. In the Forecast Workspace, scroll to the bottom of the Profit and Loss of the Chart of Accounts to locate the Dividend element.
2. Change the Dividend Method to % of Net Profit After Tax and adjust the Profit Calculation method to 'On All YTD values' to base the calculation of the accumulated NPAT
3. Enter the % of dividend you're declaring in the element editor setting panel. In the sample file, we set to declare 100% of dividends in the month of June.
4. Now we’ll set up an element transfer that allows the distribution of the profits to the beneficiary accounts
5. In the Dividend element, change the Transfer Method to % of Dividend Declared
6. Click on the Transfers Tab > Add Transfer > select Transfers (Report Currency) - % of Dividends declared
7. A window will pop out to select a transfer destination. Select the beneficiary accounts you’d like to distribute profits to i.e. Beneficiary 1 and Beneficiary 2
8. Enter the % of the profits you’d like to distribute to each beneficiary. Based on our assumptions in this example, we will enter 50% for each beneficiary
9. Review your reports to ensure that the profits have been properly distributed

Actuals

Castaway does not allow transfers in actuals months. You are only able to enter the results of the transfer i.e. increased equity and either distribution or a retained earnings adjustment.

Moving forward, you will need to enter the Beneficiary Equity values in the Balance Sheet and the Profit Distribution in the Dividend element in your Actuals Balance Sheet.

4. Rename reports to suits trusts

Trust structures use terminologies that are different from that of companies, which is the Castaway default structure. Once you’re happy with the modelling setup of your distribution, rename your reports to reflect the language used by the trust.

For example, you may want to consider renaming:

• The Dividend element to Profit Distribution
• Movement in Retained Earnings (found in the Profit and Loss report) to Undistributed Profits

5. Remove unnecessary Inbuilt formulas from Reports

Castaway has a number of Inbuilt report formulas across every report that are purposed to provide further insightful commentary and analysis. However, in instances where the Inbuilt formulas are not required in the report, you may choose to remove them and add your own formulas. Learn how to create your own custom report formula via THIS link.

To remove Castaway’s inbuilt formulas, follow the steps down below:

1. In the Reporting Workspace, select the Report you’d like to make changes to. For example, the Profit & Loss report.
2. Click on the Report Editor icon located in the upper left corner of the workspace
3. A side panel will open
4. Uncheck the report formulas that you no longer want to include
5. Once you’ve completed your selection, save the changes made by clicking on the X located under the Report Editor icon
6. Review your reports to ensure that they are as expected

Download a sample file for Modelling Trust Distributions here: