Family Trusts

What is a Family Trust?

A family trust is used to manage and protect assets whilst having discretion over when, and who, distributions are paid to. Family law can look through such trust structures as required to meet certain proceedings such as divorce however, some level of protection remains.

What are the benefits?

• Family trusts may provide protection of assets in the event of, for example, bankruptcy. This helps manage concerns about future events and the impact on family members of the Trust.
• The trustee of the Trust will have discretion as to how and to whom they pay income and assets of the Trust, which can assist in managing tax for beneficiaries.
• The trustee is free to distribute Trust income to as many beneficiaries as possible, and in proportions that take best advantage of those beneficiaries' personal marginal tax rates. The beneficiaries then pay the tax on distributions made to them.
• Unlike a superannuation fund, adding assets within a Family Trust can be done with no asset cap.
• Assets held in the Trust may be quarantined (except in NSW) from challenges to an estate from disgruntled beneficiaries.
• Franking credits from share dividends can be passed directly to beneficiaries.

What should I be thinking about?

• Trusts can be complex and time consuming to administer.
• You will require legal advice on the establishment and inclusions of the Trust Deed so itcosts money to set them up and there are ongoing legal and accounting fees. These costs may be significant and should be considered in light of the benefits the Trust can provide.
• A Trust does not have to pay income tax on income that is distributed to the beneficiaries but does have to pay tax on undistributed income.
• Trust income is assessable for Centrelink purposes and may impact beneficiary Centrelink entitlements.
• Circumstances change and your preference for allocation of the assets and income of the Trust may also change. It is important to review the Trust regularly to ensure it continues to reflect your wishes.
• Transferring existing assets in-specie to the Trust may trigger capital gains and therefore a tax liability for the owner of the asset. Please seek professional tax advice prior to transferring any assets.
• Transaction costs will be payable on the transfer of assets into the Trust.

This information is of a general nature. It does not consider your personal objectives, needs or situation. It does not represent legal, tax or personal advice and should not be taken as such. If it has been provided to you with a Statement of Advice (SoA), you should rely on the personal advice in the SoA.

Care has been taken to provide up to date and accurate information relating to the subject area however BR Advice Pty Ltd (ABN 30 612 056 523, AFSL 488655), Blue Rock Private Wealth Pty Ltd (ABN 95 166 927 055, AFSL 452733), Blue Rock Private Wealth (Melb) Pty Ltd (ABN 48 652 202 698, ASIC AFS No. 1298365) and their representatives make no representation as to its accuracy or completeness.

Published: September 2022.

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