Many business owners and investors wonder if they are operating through the most beneficial structure. An entity that may be right for you is a family trust.
Wilson Porter can:
- Help you understand how a family trust works.
- Discuss whether a family trust is right for you.
- Set up your trust and do all the necessary registrations.
- Prepare financial statements and an income tax return.
- Offer professional services throughout the lifecycle of the trust.
Setting up a family trust can be complicated if not done correctly and may not yield the results you thought it would. Wilson Porter can carry out and guide you through the process.
What is a family trust?
A family trust is an instrument that empowers a trustee to administer a trust for the benefit of the beneficiaries of the trust. A family trust is also known as a discretionary trust because the trustee has the discretion to allocate income to particular beneficiaries.
It is not enough to create a document with the title ‘family trust’ at the top. A family trust is a legal document in the form of a deed that sets out the who, how and why of the arrangement.
The purpose of a family trust
Family trusts are used to hold family assets or run a business. It is established to manage certain assets or investments and support beneficiaries, such as family members. It is also a vehicle that can be used for asset protection purposes.
Who can be a trustee or beneficiary?
Trustees can be individuals or corporate entities and are responsible for managing the trust in compliance with the law. You can appoint any number of people to take responsibility for the trust.
As managers of the trust, the trustees must agree on who will benefit from the trust itself. A beneficiary can be a person, a company or another trust. Beneficiaries do not have access to the assets within the trust fund until they are distributed by the trustees, nor can they make any changes to the trust arrangements once it has been set forth.
Is a family trust right for you?
Many benefits come with a family trust depending on what your goals are:
- Wealth accumulation that can supplement retirement savings.
- Minimisation of tax liability.
- Protects trust assets from bankruptcy or insolvency.
- Succession planning.
- Simplified estate planning.
- Capital gains tax advantages compared with companies.
- If you have a substantial amount that you’d like to invest that you’d rather not lock into a superannuation fund, a family trust could be your best option.
When is a family trust not beneficial?
There are some instances where a family trust may not be your best choice. Although you can make a corporate entity as a beneficiary, it may not be ideal to run a business. Here are some points on why that may be:
- A trust cannot retain its profits.
- Trust profits must be completely distributed every year or the top marginal rate of tax is charged to the trustee.
- Losses cannot be distributed to beneficiaries.
- Any capital injection must be made in the form of a loan.
Is a family trust taxable?
As a family trust distributes all its profits to beneficiaries, the taxing point is in the hands of those beneficiaries at their particular marginal rate. The only time a family trust is taxed is if the income is not distributed to its beneficiaries, at which point the trust is taxed at the highest marginal tax rate.
Family trusts also benefit from a 50% capital gains tax (CGT) discount which is passed on to beneficiaries.
Additionally, there are two instances where a family trust may incur other taxes:
- The beneficiary is not an Australian citizen.
- The beneficiary is a minor and any gain higher than the recommended amount is taxed at 45%.
Wilson Porter accountants are available to answer any questions surrounding a family trust and how to manage the funds within them.
Wilson Porter can make a difference
There are several different types of trusts and avenues to grow your wealth, but it’s important to choose the right one for you. Without the right guidance, you could end up losing more money than you put in, and when it comes to running a business, this could be detrimental to your long-term goals.
It pays to know that your family assets are secure within a trust, and having a professional accountant to help manage the fund can ensure that.
Wilson Porter is a team of chartered accountants that are experts in family trust structures.
Trusts that align with your needs as an individual or as a business vary. Speaking with a Wilson Porter accountant will be your best way forward in utilising a family trust.
Along the way, we can offer support, advice and suggestions at any point. Whether you want to add another beneficiary, wondering about the tax implications of a family trust or have questions about how to distribute income, Wilson Porter is here to help.