What is a family trust?

A family trust is simple but has complex implications for business and tax. This guide explains what a family trust is and how it can benefit you.

A family trust is a legal arrangement where a trustee manages assets for a group of beneficiaries. Unlike companies or partnerships, a family trust is a structure where the trustee holds assets 'in trust' for the beneficiaries.

Beneficiaries are usually family members, but trusts may also involve charities or other entities as outlined in the trust deed. The family trust deed is a critical document, establishing the rules that the trustee must adhere to when making decisions, such as how and when to distribute trust income and capital.

Recognised under Australian tax law, family trusts offer unique advantages for preserving wealth and managing financial obligations, making them a critical tool in a business owner's financial strategy.

Advantages:

Asset Protection

Family trusts can help protect assets from business risks, such as bankruptcy or litigation.

Estate Planning

You should consider discussing Testamentary Trusts with your family solicitor. They are established in Wills and can be an effective estate planning tool.

There is flexibility in family trusts.

You may be able to add or remove beneficiaries, change the terms of the trust deed (within legal boundaries), and adapt to changes in legislation or personal circumstances.

Capital Gains Tax

A family trust can also be a powerful tool for managing capital gains tax (CGT). By allowing the trustee to distribute or accumulate capital gains, the trust can potentially access the CGT discount and other concessions offered under Australian tax law

Disadvantages:

Ongoing Costs and Upfront Costs

Family trusts are expensive to set up and maintain, especially when professional fees are included.

Complexity

Family trusts can be complex from a legal and tax perspective. Trustees must understand the implications of their decisions and the trust deed's rules.

Difficult to Dissolve

Once established, it can be difficult to dissolve or make changes.

How do I set up a family trust in Australia?

Setting up a family trust involves appointing a trustee (who can be an individual or a company), drafting a trust deed, and transferring assets into the trust. Seeking professional advice during the setup process is crucial, as the decisions made at this stage can greatly influence the trust's operation and your overall financial goals.

When utilised strategically, family trusts offer substantial benefits, including tax efficiencies, asset protection, and seamless succession planning. This ensures that your hard-earned wealth remains safeguarded for you and your family.