Family Trusts Explained
What is a family trust?
A family trust is a legal structure where money or assets are managed by a person (or organisation) on behalf of and for the benefit of another. A family trust (also known as a discretionary trust) is where money and/or assets are held in trust for benefit of members of a family group.
How is income treated for a family trust?
Trusts do not pay income tax on income which is distributed to beneficiaries, only undistributed income.
For beneficiaries, income received from a trust is treated as part of their normal assessable income. Trustees should be careful in choosing how to distribute income to beneficiaries as there can be hefty penalties for distributions made to minors.
What are the benefits of having a family trust?
Family trusts have several benefits, which make them attractive.
The most important of these are:
Tax advantages
Having a family trust can provide some tax advantages by allowing income to be distributed to family members who are on lower tax rates (such as a low-income or non-working spouse), thereby reducing your tax bill.
Asset protection
Family trusts can assist in protecting the family group’s assets where a member becomes bankrupt or insolvent.
Estate planning
Using a trust can provide estate planning benefits with more certainty about how your assets will be managed after your death.
Flexibility
One of the main advantages of having a family trust is that the trustee (the person or persons responsible for the trust and its’ assets) can distribute income earned by the trust to the beneficiaries however they wish.
Things to consider
It is very important that trustees be actively involved in the running of a trust. Trustees must be involved in all decision-making, record decisions and prepare annual financial statements. Trusts must have a formal written trust deed with a separate bank account. Setting up a simple family trust is not expensive but you will have annual accounting costs and adviser fees.
Call or email us to find out if a family trust would suit your needs.
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