Family trusts are more commonly known for your snotty nosed kids you see on the movies. but here in Australia, trusts hold a significant place and can assist in building your wealth.
There are many types of trusts and which one you should choose depends on many factors such as the type of investment, whether you will require a loan, your marriage status and your susceptibility to being sued. The most common type of trust thought is a discretionary trust, commonly known as a family trust.
Basically a family trust is a vehicle to accumulate investments that are protected, with the profits distributed in the most tax-effective way. A family trust allows the trustee to use their discretion in distributing funds to the beneficiaries, which is where the real value of a trust can occur.
Here are five benefits of using trusts to manage family wealth:
Asset protection
A trust can be used to keep the wealth in the family. Where a parent might want to buy a house for their child, using a trust will allow the child to live in the house but the ownership remains with the trust.
If there were potential issues with an in-law, the trust structure assists in potentially keeping the property outside of the marital asset pool.
Cost effective
The cost of establishing a family trust is relatively low. A trust generally can cost between $1200 and $2000 in legal documentation with accounting fees varying between $800 and $2000 each year.
Tax minimisation
Trust distributions can be directed to family members on lower tax rates, potentially saving you thousands of dollars in tax.
If purchasing a property for a child, this effectively becomes a rental property which allows the trust to claim expenses in the same way that a landlord can for a rental property. Keep in mind though that buying a property in a family trust does not qualify you for the first homeowners grant or stamp duty concessions.
Retirement planning
While the superannuation rules continue to change, a trust provides a flexible structure to accumulate long term wealth with tax benefits. Consider accumulating funds both in your super fund and also within your trust. Unlike your superannuation fund, your trust doesn’t have any rules about when you can access the funds and can provide for an early retirement prior to gaining access to your super fund monies.
Flexible and estate planning
Most family trust deeds are flexible in their operation and can provide for good estate management, allowing for assets to benefit generations without the need for ownership to change from one individual to the next.
It’s no surprise that trusts are a popular way to not only accumulate money, but to protect it and keep it in the family. Talk to your financial adviser about the suitability of a trust for your family and start gaining the benefits that many Australians are already enjoying.
Disclaimer: Any advice is general in nature and individuals should seek their own professional advice before making any financial decisions.
