A family trust is a legal arrangement where a trustee manages assets on behalf of a group of beneficiaries. Unlike companies or partnerships, which are separate legal entities, a family trust operates as a structure where the trustee holds assets “in trust” for the beneficiaries. 

Beneficiaries are usually family members, but the trust deed may also designate charities or other entities. 

The family trust deed is a crucial document that outlines the rules the trustee must follow when making decisions, such as how and when to distribute income and capital.

Under Australian tax law, family trusts offer key benefits for wealth preservation and financial management. They are an essential tool for business owners looking to structure their finances effectively.

Benefits of a Family Trust 

Here’s why a family trust could be a smart move for you:

Asset Protection: A family trust can help protect your assets from risks like business bankruptcy or legal disputes. It creates a shield that keeps your wealth safer from creditors and lawsuits. 

Estate Planning: If you’re thinking about long-term planning, it’s worth talking to your family solicitor about testamentary trusts. These trusts are set up in Wills and are a powerful tool for managing how your assets are passed down to future generations. 

Flexibility to Adapt: Family trust offers great flexibility. You can add or remove beneficiaries, adjust the terms of the trust (within legal limits), and make changes as your circumstances or the law evolves. 

Capital Gains Tax: A family trust can also help you manage Capital Gains Tax (CGT). By giving the trustee control over how and when capital gains are distributed or accumulated, the trust can take advantage of tax benefits like CGT discounts and other concessions available under Australian tax law. 

Potential Downsides of Family Trusts

While family trusts offer many benefits, there are some potential downsides to keep in mind: 

Costs Can Add Up: Setting up and maintaining a family trust can be costly. You’ll need to pay legal and professional fees, both when the trust is created and to ensure it stays compliant over time. 

Can Be Complicated: Family trusts can be complex, both legally and tax-wise. Business owners need to fully understand the rules in the trust deed and the impact of their decisions. 

Hard to Change or End: Once a family trust is established, it can be difficult to dissolve or make changes. Hence, it’s important to be sure about your decision before moving forward. 

How to Set Up a Family Trust in Australia?

To set up a trust, you must appoint a trustee, which can be either an individual or a company. You’ll also need to create a trust deed that outlines the rules for managing the trust. Afterward, assets are transferred into the trust.

It’s crucial to consult with professionals during this process, as the decisions made early on can significantly affect how the trust is managed and your long-term financial goals.

Talk to Your Accountant:

Your accountant knows your personal situation and can guide you through the requirements for setting up a family trust. Having the right advice at this stage will give you peace of mind that everything is set up properly. 

How to Get Started

When setting up a family trust, it’s important to work with an accountant.

They can help you determine if a family trust is the right choice for your situation and guide you in choosing the best trust structure for your needs. They will also assist with the complex legal and tax requirements involved in family trusts in Australia, ensuring everything is set up properly.

Having a skilled accountant on your team isn’t just about making sure your trust is set up right. It’s also about securing the financial future of your family.  

With thoughtful planning, a family trust can offer significant benefits, such as tax savings, asset protection, and succession planning. This helps ensure that the wealth you’ve worked hard to build is protected for future generations. 

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About the Author: David McKeller

David McKellar is a Chartered Accountant and Director of Allied Business Accountants, an accounting firm specialising in providing strategic advice and taxation services to business owners, investors and Self Managed Superannuation Funds.

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