Why You Should Set Up a Family Trust

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What will you learn?

There’s a common saying that you should start most endeavours with the end in mind and this is especially true for property investment.

But unfortunately too many investors begin their journey without considering what might be the best ownership structure and wind up owning their entire portfolio in their personal name.

While this is perfectly alright in many circumstances, there are other options out there that may be better for you and your family.

So, in this article, we’re going to get to the bottom of setting up a family trust as well as explore its benefits and risks.

What is an Australian Family Trust?

In the beginning, it can be a little tricky to understand the ins and outs of family trusts so we’ll try our best to explain it as simply as possible.

The term family trust refers to a discretionary trust set up to hold a family’s assets or to conduct a family business.

Generally, they are established for asset protection or tax purposes.

What does it cost to set up?

Like any type of legal documentation, setting up a family trust does cost money.

In fact, the initial start up cost can be about $2,500 and then the same amount again annually in maintenance-type fees.

These types of ongoing costs are necessary because there are significant rules and regulations around family trusts, including meeting the requirements for asset protection and all the Australian Taxation Office registrations on ABN as well as Tax File Numbers.

Family trusts can also attract stamp duty with the cost varying from State to State:

  • WA – Nil
  • ACT – Nil
  • NSW – $500 (due 3 months of the date of the deed)
  • NT – $20 (60 days of date of deed)
  • QLD – Nil
  • SA – Nil
  • TAS – $20 (due 3 months of the date of the deed)
  • VIC – $200 (due 30 days of the date of the deed)

What are the benefits of a family trust?

 Family trusts offer a variety of benefits, that’s why plenty of people choose to set one up.

Some of the benefits of setting up a family trust include: 

  • Asset protection – such as the ability to buy a house for a child to live in without ownership being forfeited because the ownership remains within the trust.
  • Minimising tax – trust distributions means lower incomes for tax purposes.
  • Planning for retirement savings – the flexible structure of trusts presents an opportunity to accumulate wealth which can supplement superannuation savings.
  • Flexibility to invest in property – unlike super, holding assets within a trust doesn’t have the same strict rules.
  • Capital Gains Tax (CGT) – family trusts have CGT advantages compared to companies. This is because the 50 per cent discount factor on capital gains received for assets retained for at least a year applies to trusts but doesn’t apply to companies.

What are the risks?

One of the major risks or disadvantages of a family trust is that it can’t distribute capital or revenue losses to its beneficiaries. As a result, should a trust incur a net loss, its beneficiaries won’t be able to offset that loss against any other assessable income that they may derive.

Other risks and disadvantages to setting up a family trust can include: law

  • Tax risks – tax avoidance can be a risky business and a tax accountant should be consulted before you unknowingly get yourself in trouble.
  • The name holding the assets – the trustee is the legal owner and this individual’s name will appear across all documentation.
  • Loss of ownership of assets – personal ownership of property is lost when managed through a trust.
  • Additional administration– this costs time and money long-term.

Of course, with any type of legal documentation or taxation advice, it’s always advisable to consult the experts to best understand your individual situation.

The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.

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About

Andrew is a leading finance specialist who holds a Diploma of Financial Planning (Financial Services). With over 32 years of experience in finance, Andrew has been acknowledged by the mortgage industry with multiple awards. Visit IntuitiveFinance.Com.Au


'Why You Should Set Up a Family Trust' have 33 comments

    Avatar for Andrew Mirams

    August 9, 2021 Anna

    Hello Michael, a relative of mine has a small commercial property leased from which he lives off from the small rent he receives, and because of this, doesn’t receive a pension. He is 81 years old. I suggested he set a trust fund for his assets, which includes his home, the commercial property and some savings, currently in a term deposit at the bank. In this way, he could receive some government benefits as well as reduce personal tax. Should he do this and establish a trust fund? Thanks in advance

    Reply

      August 9, 2021 Michael Yardney

      Anna – moving ownership of properties to a trust would involve stamp duty and capital gains tax as it is really a sale and purchase, even though owned by the same beneficial owner. It would make no commercial sense.

      Reply

    Avatar for Andrew Mirams

    May 3, 2021 Aman

    Hi Michael,
    Thanks for sharing. It helped me a lot to understand the concept.
    I have a question, how depreciations are handled in Family trust. For example if trust owns a property and the property gets deprecated by $20000. Will that amount be deducted from trust’s income? And if yes then can it be carried forward and claimed at the end when property is sold?
    Thanks in Advance.
    Regards
    Aman

    Reply

      May 3, 2021 Michael Yardney

      Depreciation for a property owned in the trust is deducted from the trust income. When you sell a property the exact opposite to what you’ve mentioned happens – you have to add back all the depreciation benefits you have accrued when calculating capital gains tax

      Reply

    Avatar for Andrew Mirams

    November 24, 2020 Scott

    Heya Michael,

    1) What are the usual methods of providing funds to the Trust?
    As it would not have have any funding of its own or income, especially at the beginning, can money simply be bank transferred from our own personal accounts or does one need to set up some sort of official loan type arrangements, or something else entirely?

    2) If I understand correctly, the Trust is the entity that has the bank account, while the Trustee has the assets held in the Trustee’s name?
    Meanwhile, the Trustee has the right to perform actions on those (or acquire new) assets by using that account on behalf of the Trust.
    Is that right?

    3) If a human is the Trustee, not a company, how does one ensure assets are not legally owned by a person instead of the Trustee for the Trust?

    Thanks for your time.

    Reply

    Avatar for Andrew Mirams

    October 15, 2020 Helen Lawson

    I am a sole trustee in a family trust. my estranged husband is the settlor. can he remove me from the trust

    Reply

      October 15, 2020 Michael Yardney

      No – the settlor cannot remove the trustee – but the appointer can!

      Reply

    Avatar for Andrew Mirams

    May 25, 2020 nina

    I am currently separated. I am looking to set up a family trust for myself and 2 kids and use this to acquire investment property. Is it best to wait till our divorce is final or is the trust protected if I decide to go ahead and purchase my first investment?

    Reply

      May 25, 2020 Michael Yardney

      Nina – best to ask your solicitor. It depends how far down the track you are with your divorce settlement

      Reply

    Avatar for Andrew Mirams

    February 3, 2020 Pauline

    We have a family trust with my 8 siblings and my brother (who has been running the farm) now wants to buy it and we all want to sell it. However one sister has been maintaining the accounts and we do not understand or have any transparency over the records of the Trust. Hence we need external help to facilitate the sale – what do you suggest?

    Reply

      February 3, 2020 Michael Yardney

      Your family’s accountant should be able to give you more clarity

      Reply

    Avatar for Andrew Mirams

    December 10, 2019 Michael Marziale

    What is the process for removing a property from a Family Trust to Individual? And what is the cost involved?

    Reply

      December 10, 2019 Michael Yardney

      It needs to be sold – at market price – and this means CGT and stamp duty will need to be paid

      Reply

    Avatar for Andrew Mirams

    November 11, 2019 Andrew

    Who actually owns the trust or the assets that the trust owns. We have a discretionary family trust that owns the family business. At everyone’s desire, I want to buy out my siblings’ share of the business but am wondering about the mechanics of this. The trustee is a company of which each all siblings have an equal share.

    Reply

      November 11, 2019 Michael Yardney

      Andrew – it’s best you get your accountant and solicitor to set things up for you to make the transfer. If it’s a discretionary family trust, the trustee company does not actually own the assets but manages them on behalf of the beneficiaries

      Reply

    Avatar for Andrew Mirams

    July 10, 2019 Ying

    1.Can i put my investment property into a family trust? is any stamp duty i need to pay?
    2.Any of the benefieiaries in the family trust getting a divorce what the husband or wife can get form the trust?
    3.if the family member left only one person or no one, what will happen with money in the trust?

    Reply

      July 10, 2019 Michael Yardney

      Ying – answers to your questions

      1. stamp duty and capital gains tax are payable – this means it’s not often worth doing
      2. if not set up correctly other family members (the outlaws) may have some claims to trust assets
      3. Get your accountant to set things up correctly

      Reply

    Avatar for Andrew Mirams

    July 7, 2019 Netava Labalaba

    I have six daughters and a son. All my daughters are married except one, my son, who is not married as well. I am thinking of setting up a trust without their husbands.Does this create a problem excluding their husbands in the trust?

    Reply

    Avatar for Andrew Mirams

    June 18, 2019 Mel Francois

    HI…I’m looking at purchasing some rental properties. What would be the best way to protect those assets if not a family trust?

    Reply

      June 18, 2019 Michael Yardney

      Mel – Why would you look for a different way when all the wealthy people use trusts to own their assets?

      Reply

    Avatar for Andrew Mirams

    February 16, 2019 Hok Tam

    We set up a family trust and a proprietary company as trustee to manage it about 30 year ago. Throughout the years we are no longer able to trace the trust document. Was this document registered somewhere from which we can get a certified true copy of it?

    Reply

      February 17, 2019 Michael Yardney

      Hok – if you borrowed in the name of the trust the bank may have a copy and you will definitely need a copy if you plan to borrow for assets owned by the trust.

      But if it is 30 years old it’s likely that many of the clauses are outdated – this is a prime opportunity to asses your needs moving forward today – they’re likely to be very different to 30 years ago. Why not catch up with Ken Raiss and get an opinion on your options – you can do this here

      Reply

    Avatar for Andrew Mirams

    February 9, 2019 Kevin

    Can I put my family house in a trust and then rent that house (at a fair rent) from the trust even if I am the trustee?

    Reply

      February 9, 2019 Michael Yardney

      If you structure it the way you’re suggesting the main purpose of this would be seen as a way to minimise tax and that’s illegal and would not be acceptable.

      I do know people who rent properties through their family trust but this has been carefully structured to make them comply.

      Reply

        Avatar for Andrew Mirams

        August 24, 2021 Martin

        HI Michael, this is a problem because Kevin suggested to put his family house into the trust? How about I put my investment properties into the trust, receive rent as income, and distribute them to the beneficiaries? I thought this is a very common practice?

        Reply

          August 25, 2021 Michael Yardney

          Its the same issue – changing ownership to a trust involves a sale (which generates the possibility of CGT) and then stamp duty on the purchase.
          Ownership decisions must be made BEFORE you purchase a property, not after

          Reply

    Avatar for Andrew Mirams

    January 31, 2019 Roger Guest

    Be very careful who you nominate as the “appointor” in setting up a Family Trust because you confer upon them the power to appoint or remove the trustee.

    Reply

      January 31, 2019 Michael Yardney

      You’re right Roger – the appointer is the most powerful person in the trust structure

      Reply

    Avatar for Andrew Mirams

    January 19, 2019 Terry Ronlund

    How are decisions made by the Trustee and who bears the cost of outgoings

    Reply

      January 19, 2019 Michael Yardney

      You are the trustee Terry (or you and other family members) so you make the decisions and cost are born by trust funds so it must have access to funds – sometimes through income from other sources or from distributions or loans from you

      Reply

    Avatar for Andrew Mirams

    July 13, 2017 Alex

    Thanks Andrew, while trusts are extensively covered, how does partnership work for property investors? I think family partnership is easier to set up and less costly to maintain, they are well suitable for those who had purchased investments in joint names while offering similar tax effectiveness to trusts via salaries paid from partnership. Great advantages of partnerships are 1) they can be set up “on demand” without attracting stamp duty and 2) they do not trap loss like trusts do. I would love to see an article on this. Many thanks.

    Reply


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