Family Trusts: How To Protect Your Assets And Family’s Wealth

Affective ways to look after your families wealth

As we kickstart the New Year, it’s a good time to review whether you’re doing enough to protect your wealth and plan for your family’s future. One such strategy for asset protection is a family trust. As expert financial planners in the Southern Highlands, Poole Advisory has put together an overview of family trusts so you can understand what they are and whether or not they’re right for you.

What is a family trust?

A family trust is a type of discretionary trust where assets are transferred to a trustee. The trustee then manages those assets for the benefit of a group of beneficiaries, who are typically family members. The point of the trust is to provide a way to manage and protect family assets, ensure financial support to beneficiaries, and offer tax advantages.

Through this setup, the trust can distribute income and capital gains among family members in a tax-efficient manner, while also offering a layer of protection against creditors or legal disputes. It’s a strategic tool for estate planning, aimed at preserving wealth across generations and supporting family members according to the trust’s terms.

How to set up a family trust

Setting up a family trust in Australia involves a number of important steps. Here’s how to do it:

  1. Choose a trustee to manage the trust. This can be one or more individuals (including yourself), or it can be a corporate entity. The trustee will be responsible for managing the trust’s assets, so it’s a very important role.

  2. Decide who the beneficiaries of the trust will be. Beneficiaries can include family members such as your spouse, children, grandchildren, and sometimes charities or other entities.

  3. Have a lawyer draft the trust deed. This is a legally binding document that outlines the trust’s terms, including the powers of the trustee, the rights of the beneficiaries, plus how and when the trust’s assets will be distributed.

  4. Settle the trust. This process requires a settlor to sign the trust deed and provide the trustee with a nominal fee. Importantly, to avoid income tax complications, the settlor should not be a beneficiary of the trust.

  5. Execute the trust deed. The trustee must read and understand the trust deed and voluntarily agree to act as the trustee. They then must sign the trust deed in the presence of a witness.

  6. Stamp the trust deed formally. Stamping the trust deed officially creates the trust and formalises its legal status. Depending on the state or territory, you may have to pay stamp duty. In NSW, for example, you’re currently required to pay a stamp duty of $750.

  7. Apply for a Tax File Number (TFN) and Australian Business Number (ABN). Both a TFN and an ABN are essential for tax purposes. You’ll also need to open a bank account to hold the trust’s cash assets and to conduct its financial transactions.


Protecting your assets and wealth

The reasons people set up a family trust

Setting up a family trust can be done for a number of reasons. The main purposes of a family trust are:

1. To protect your assets

By legally distancing your assets from your personal estate, you can protect them from potential creditors and lawsuits. That’s why family trusts are often used by people who work in a job where lawsuits are common, such as a doctor or a surgeon. This separation ensures their wealth is preserved for future generations.

2.   Estate planning

With a family trust, your assets are not considered part of your personal estate upon your passing. This means there’s no need for the sale or transfer of ownership of the assets during the probate process. A family trust provides the flexibility to customise distributions to beneficiaries’ unique situations too. For example, if you have a child who isn’t particularly responsible with money, you can organise the funds to be paid to them over time, instead of all at once.

3.   Tax efficiency

The trust itself may be subject to taxation on its income, but income distributed to beneficiaries is typically taxed in their hands. This can offer tax planning opportunities, such as distributing income to beneficiaries in lower tax brackets to reduce the overall tax burden. You can change how the income is distributed every year, too, which offers flexibility. The other benefit is that, unlike companies, family trusts receive a 50% capital gains tax discount if the asset is held for more than 12 months.

An example of why you might set up a family trust

To understand more about why you might set up a family trust, let’s look at an example. Imagine you’re a surgeon who is the primary income earner in a family of four. Over the past few decades, you’ve accumulated significant personal wealth. You’re aware your job carries a high risk of malpractice lawsuits, and you want to ensure your assets are protected and can be passed on to your children (and eventually your grandchildren).

By setting up a family trust, you can legally distance assets such as savings, shares or investment properties, from your own personal estate. So, if you are ever faced with a lawsuit, the assets within the trust would generally be protected as they are not in your direct possession.

Now also imagine that, of your two children, one is financially savvy while the other is irresponsible with money. Through the family trust, you can control how the wealth is distributed to both children if you pass away. You can set up a steady stream of income for each one, preventing the child who isn’t adept at handling money from squandering it all at once.

How to establish and manage your family trust to protect your assets

Ultimately, whether a family trust is right for you will depend on your personal situation. Before making a decision, it’s a great idea to discuss it with a financial planner or advisor.

A financial planner can help to:

  • Evaluate your financial situation, goals and family needs, then recommend the best trust structure based on your circumstances
  • Simplify the complex tax landscape of family trusts to maximise the tax benefits for the trust and its beneficiaries
  • Develop investment strategies for the trust’s assets to align with your family’s financial goals
  • Regularly assess the trust’s performance, making necessary adjustments to meet your family’s changing needs.

Want expert advice from a financial planner on whether a family trust is right for you? Poole Advisory can help you create a strategy that protects your assets and allows you to pass on your legacy to your family. To speak with a financial planner about family trusts, get in touch here or book an appointment.

Compliance Disclaimer:

This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns

Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917

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