A Family Trust is set up to hold a family’s assets or manage a family business. Protecting your joint assets and navigating tax can become challenging and sometimes even confusing. Setting up a Family Trust is one of the ways to efficiently manage these aspects of operating the business or just taking care of your family’s assets.
Essentially, a Family Trust provides the person or entity under whose name the trust is established – referred to as the “Trustee” – the discretion over who receives distributions from the Trust and when, in terms of the legal agreement entered into. Below is a brief overview of the benefits and cons of setting up a Family Trust.
The Benefits of a Family Trust:
- Family Trusts may protect selected assets against claims and creditors and provide the benefit of selected assets no longer being personally held
- Trust distributions may minimise the tax payable by the business.
- Family Trusts can serve as a vehicle for wealth accumulation, over and above minimum contributions to your superannuation fund.
- The flexibility of Family Trusts can enable the acquisition of various alternative investments, such as property.
- In comparison to companies, Family Trusts have advantages over Capital Gains Tax. A 50% discount is received on capital gains distributed to an individual for assets retained for at least a year – a benefit that does not apply to companies.
The Cons of a Family Trust:
- The Trustee becomes the legal owner of all the assets, so all documentation will only contain the Trustee’s name. This limits naming options.
- Managing assets through a trust takes away any entitlement you had to them as a personal owner. They legally belong to the trust.
- In the long-term, managing assets through a trust can be administratively cumbersome and costly.
- As well as the benefits of tax minimisation there can also be tax risks. It is essential and prudent to consult a Tax Accountant before setting up a Family Trust.
What to expect when setting up a family trust:
The costs of setting up and maintaining a Family Trust will vary depending on the details. Broadly speaking, the process will include:
- deciding what assets will be placed under the Trust
- nominating the Appointor and appointing a Trustee
- determining who the beneficiaries will be
- drafting legal documents – specifically, the Trust Deed
- payment of Stamp Duty on the Trust Deed
- registering as a business
- opening a bank account
- and commencing with activity relating to the trust.
If you’re unsure which type of trust structure will be best for your circumstances, read our article here about other types of trusts and how they operate. Find out more about family trusts and how to set one up by contacting Stones Sharp Accountants today.
FCPA & CA
Shane is a Fellow of the Australian Society of Certified Practicing Accountants and a Chartered Accountant.
Shane’s passion is to consider the clients, the client’s business and taxation affairs with a holistic approach whilst providing business mentoring, business strategies, systems development, taxation advice and taxation planning in order to assist his clients and their business achieve their goals.