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. I 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, 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.