Family Trusts – The Good, The Bad And The Ugly
Family Trusts have been in the news quite a lot lately. They’ve been delved into at ICAC hearings, publicly squabbled over in court by super rich families and the Tax Office tries to get its mits on the money they hold.
But despite all that, Family Trusts – or Discretionary Trusts as they are also called – are still a great way to protect your family’s wealth and are valuable for small businesses.
Trusts have been around since the time of the Crusades when lords and knights wanted to keep their castles out of the hands of the taxman or crooked relatives while they were away fighting in the Holy Land.
A Trust is an agreement where a person or company agrees to hold an asset for those nominated to benefit – usually a family. It can include anything from properties, shares, cash, a farm or business to works of art and inventions.
Commercial lawyer Tony Mitchell says there are many advantages to forming such a Trust including long term financial security, tax minimisation and protection for family members who need financial assistance for some time.
“They are very useful in protecting family assets, but you need sound legal advice when setting them up to ensure you achieve what you want,” Mr Mitchell from Stacks Law Firm said.
“Laws relating to Trusts are subject to change so you need to make sure you have expert advice to stay on top of any legal requirements.”
When you transfer your assets into a Trust you no longer own the assets in your own name. They are controlled by a Trustee, but when you set up the fund you set out how they are managed and how they distribute funds to beneficiaries.
Let’s say the Trust buys a property. Any income from that property belongs to the Trust. The Trust can minimise tax for the family by distributing that income to beneficiaries such as members of the family who have low income, therefore pay low or no tax.
The other main benefit is that assets held by the Trust generally can’t be reached by creditors. Courts and Treasury love trying to get at assets held by the Trust structure, so it’s important to make sure they are drafted correctly and kept up to date with any changes in laws and regulations.