FAMILY TRUST Setups
Family trusts are a typical kind of trust used to manage a family business or hold assets. The arrangement or relationship between trustees and beneficiaries is known as a trust. When such an arrangement is created between family members, this kind of structure then becomes a family trust, where all of the people involved are either immediate or extended family members of the primary beneficiaries. A Family Trust structure is generally, controlled by a trustee, and an appointer can have the power to replace the trustee. The beneficiaries would need to be nominated by the trustee depending on the objects of the trust.
When non related beneficiaries are involved in a trust setup, then you may wish to setup a unit trust. See more about unit trusts by clicking on the link below:
Unit Trust Setups OR Hybrid Trusts
Family trusts might also be helpful when setting up for an estate. When a significant family member passes away, ownership of assets like a share portfolio or vacation home can still be maintained through the use of a family trust. “This is because the trust, not the family member, is the legal owner of the asset.
For the benefit of family members, assets might be held and managed by a family trust, a legal entity. A person or a couple, who are typically the trustees, can create a family trust to retain their assets for the benefit of their children and other descendants.
A trust can be thought of as a bag that holds belongings, for example phone, laptop, money, books etc. A family trust in comparison holds property; e:g: money, cars, jewelry, business, shares, antiquities, art and other precious high value assets. These assets are available for use upon specific rules being met for the nominated beneficiaries. The beneficiaries can only receive the benefits upon the trustee’s sole discretion. This factor hence makes the assets held in the trust secure and separates them from personal assets. All assets placed in the trust become trust property and are under the trustee’s supervision.
A family trust setup normally doesn’t pay any taxes on its own revenue. Instead, the beneficiaries receive the income and pay tax at their own rates. Who in the family receives payouts is determined by the fund’s trustee.
What are the advantages of a family trust setup?
Family trusts have several advantages, which is why many people decide to establish one. The following are some advantages of creating a family trust:
- Asset protection such the capacity to purchase a home for a child to reside in without forfeiting ownership because the ownership remains within the trust.
- Keeping tax related trust distributions to a minimum resulting in lesser taxable income.
- Saving money for retirement- The adaptable trust structure offers a chance to build wealth that can supplement superannuation funds.
- Flexibility in property investments- Unlike super, there are less restrictions on holding assets in a trust.
- Family trusts offer benefits when it comes to capital gains tax (CGT) compared to corporations. This is due to the fact that family trusts are subject to the 50% discount on capital gains obtained for assets kept for at least a year, businesses are not.
What are the disadvantages of setting up a family trust?
The inability of a family trust to disperse capital or revenue losses to its beneficiaries is one of the main risks or disadvantages of the structure. Therefore, if a trust experiences a net loss, its beneficiaries will not be allowed to apply that loss to any other assessable income they may receive. Other dangers and drawbacks of creating a family trust can be as follows:
- Tax risks: Tax law is complex when it comes to family trusts. You will need the services of an experienced tax accountant to navigate taxation related rules.
- Land Tax applies at trust surcharge rates.
- The legal owner of the assets is the trustee, whose name will be listed on any ownership documents. Once the trust has purchased a property the only way it can be transferred out in most cases will be by paying stamp duty.
- Loss of asset ownership: When assets are administered through a trust, personal ownership of the assets is lost.
- Given the complexity involved, if there are any changes to the trust itself required in the future, legal costs will nee to be taken into consideration.
For the best understanding of your specific circumstances, it is always advisable to us prior to making a decision. We provide free 15 minute over the phone consults with one of our accountants who will be able to answer questions with matters pertaining a trust setup.
A One Accountants can evaluate your setup, offer suggestions, and then carry out the process of the family trust setup for you.
If you may have any questions and would like to have a no- obligation discussion, kindly feel free to call us on 03-86091889.