Say What Wednesdays

Do you need a family trust?

This week’s question is, ‘do I need a family trust?’. I have had a few questions about this over the past weeks, however in order to avoid making this ‘personal advice’, I thought I’d just talk about it in more general terms.

What is a family trust?

  1. Family Trust refers to a Discretionary Trust set up to hold a family’s assets or to conduct a family business
    • Established by a family member for the benefit of members of the ‘family group’
  2. Established to hold assets for mainly two reasons:
    • asset protection or
    • tax purposes (will come back to this)

The Trust

  1. Settlor – settlor executes the trust deed and then, generally, has no further involvement in the trust
  2. Appointor – Has the power to add or remove trustees (controlling power)
  3. Trustee
    1. Role – the trustee is responsible for the trust and its assets
      • broad powers to conduct the trust and manage its assets
    2. Types
      • Individual – Can be mum and dad for instance, in a family situation
      • Corporate – Company acting as trustee – Directors
        • Additional layer of protection and flexibility
  4. Beneficiaries
    1. Named (Primary) – receives the benefits
    2. Secondary – Spouse, de facto, children (generally family members)
    3. Company – Corporate beneficiary

 

How a trust works

Assets are owned by the trustees, held in the trust

  • A separate environment, even if transferring from individual to same individual as a trustee, it’s still a transfer of ownership

Types of assets

  1. Shares
    • Franking credits received by beneficiaries
  2. Property in trusts
    • Loss of negative gearing, unless income can fully offset
    • Property taxes

Trust income – Distributions

  1. All distributions must be made only to people who qualify under the terms of the trust deed to be beneficiaries of the trust.
    • Distributions are not payments! – completed on tax returns but don’t actually have to be physically paid out
  2. Forms part of a beneficiary’s assessable income – taxed at personal marginal tax rate
    • Trust does not have to pay income tax on income that is distributed to the beneficiaries
    • Trust pays tax on undistributed income
  3. Where distributions go wrong
    • If a family trust makes a family trust election and then pays out to someone not a member of the family group, they will be taxed at the maximum rate possible
    • Undistributed income is taxed in the hands of the trustee at the top marginal tax rate of 45%
    • Penalty tax rates can apply to distributions made to minors

Benefits 

  1. Flexibility – Tax planning
    • favourable taxation treatment by ensuring all family members use their income tax “tax-free thresholds’
    • Capital gains tax can be distributed – split between beneficiaries
  2. Asset protection
    • protecting the family group’s assets from the liabilities of one or more of the family members (for instance, in the event of a family member’s bankruptcy or insolvency)
  3. Estate planning
    • provides a mechanism to pass family assets to future generations
      • Trust life of 80 years
    • Helps avoid challenges to the will following a death of a senior member of the family

Situations where it will work

  1. Wanting to invest and accumulate wealth
    • OR, own a business
  2. Asset protection – Are you in a situation you will be sued
  3. Taxation planning – Will you have people to distribute to?

What is important for a trust – Long term Planning!

  1. Transferring owned assets in has problems
    • CGT – The transfer of assets from your own name into a trust is a sale
    • Stamp Duty (For property) – The trust would need to technically buy the property off you

Thanks for listening…if you have a question or want to provide any feedback, go to https://financeandfury.com.au/contact/

 

We’re addicted to easy hits of dopamine, and it’s impacting our ability to build wealth

Episode 22 We're addicted to easy hits of dopamine, and it's impacting our ability to build wealth Today we will talk about the fundamental principle of being wealthy. It’s very basic, and, if you get it right, you will start to accumulate wealth…which is the whole...

Is there any proof that having more millionaires per person is better for the poor?

Welcome to Finance and Fury, The Say What Wednesday edition. Where every week we answer your questions. Question from Anton - In your recent podcast you mention countries that have more millionaires and billionaires have more gdp and a higher quality of life. I am...

Savvy Super: Tips on what you can do now with little effort or sacrifice to maximise your future

Episode 14 Savvy Super: Tips on what you can do now with little effort or sacrifice to maximise your future Have your Super set up – do yourself a favour! What will kill your retirement? Not looking at your super now. Would you trade 15 minutes now for $350,000 in 30...

Where to invest in a post election world?

Welcome to Finance and Fury There is a saying that goes hoping for the best but planning for the worst. With the election around the corner, for those wanting to make it for themselves and create financial security may be in for a bit of a shake up Today I want to...

Say What Wednesdays: What advice would you give your 21-year-old self?

Say What Wednesdays What advice would you give your 21-year-old self? Today’s question is from Declan, “What advice would you give your 21-year-old self?” To my 21-year-old self I would have the following advice: Life is a series of challenges, the more you solve the...

The 4 reasons when not to buy property

Welcome to Finance and Fury Today’s episode is with Jayden and we will be talking about why property might not work for you, or when you shouldn’t buy property. We have talked about using property to build long term wealth using leverage. However, there are some...

Repress, suppress, invest! Check your emotions at the door

Episode 12 Repress, suppress, invest! Check your emotions at the door Welcome – Today we're talking about controlling your behaviours and emotions...when it comes to investing Investing is an action, controlled by behaviours – emotions change your behaviours. Getting...

Say What Wednesdays: Petrol Prices are going up – why this is and what to do about it!

Say What Wednesdays Petrol Prices are going up – why this is and what to do about it! Australian motorists are suffering the biggest annual increase in petrol prices in 9.5 years as global factors combine to slug drivers at the bowser. ACCC - 2017-2018 financial year...

Furious Fridays: Furious Fridays: The Myth of trickle-down economics

Hey all, and Welcome to Finance and Fury, the Furious Friday edition. Have you ever heard of trickle-down economics? As you know, Friday episodes are here to clear up any misconceptions about economics and politics, and this is the biggest one when it comes to...

If you think that you’re a victim, you are really your own oppressor! Building wealth and demand in an Inclusive System

Furious Fridays If you think that you’re a victim, you are really your own oppressor! Building wealth and demand in an Inclusive System Welcome to Furious Fridays! Make sure you’re caught up with last week’s episode about the system and what it should provide System -...

Pin It on Pinterest

Share This