Why You Should Set Up a Family Trust

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.

Why You Should Set Up a Family TrustBut 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.

So, 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? 
Want to take advantage

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)

OK, so 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: Why You Should Set Up a Family Trust

  • 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.

And 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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Andrew Mirams

About

Andrew is a leading finance strategist who holds a Diploma of Financial Planning (Financial Services). With over 27 years of experience in finance, Andrew has been acknowledged by the mortgage industry with multiple awards.Visit www.intuitivefinance.com.au


'Why You Should Set Up a Family Trust' have 19 comments

    Avatar

    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

      Michael Yardney

      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

    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

      Michael Yardney

      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

    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

      Michael Yardney

      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

    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

      Michael Yardney

      July 8, 2019 Michael Yardney

      There are “special blood line trusts” that we create for our clients at Metropole Wealth Advisor

      Reply

    Avatar

    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

      Michael Yardney

      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

    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

      Michael Yardney

      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

    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

      Michael Yardney

      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

    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

      Michael Yardney

      January 31, 2019 Michael Yardney

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

      Reply

    Avatar

    January 19, 2019 Terry Ronlund

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

    Reply

      Michael Yardney

      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

    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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