The pros and cons of Family Trusts

Australians seem to love a good family trust – as an investment vehicle, they’re second only to superannuation funds. Family trusts can be a way to protect family assets, invest in property, reduce tax and distribute the profits among the family’s taxpayers.

Understand Family Trusts

Recent changes to superannuation rules may be giving family trusts an edge. Investors at least are increasingly exploring the family trust as an avenue to improve their financial flexibility.

Family trusts aren’t just any old discretionary trusts – although similar, a family trust isn’t what it says on the tin until a Family Trust Election (FTE) has been made and the trust passes the ‘family control test’. Once this process has been completed – usually by an accountant or tax advisor – the trust is entitled to certain tax concessions. At the same time, distribution of the trust income has to pay family trust distribution tax if funds are paid outside of the members of the trust.

What Are The Benefits?

A family trust structure can also help with estate planning. A Testamentary Trust can be included in your Will for the benefit of your children and grandchildren if they are under 18. After all your work to build up your assets, it might be a comfort to know that your planning will care for the financial security of future generations.

Family trusts aren’t wall-to-wall sunshine. Disadvantages include the costs of setting them up and meeting the regulatory requirements, stamp duty and the inability to distribute losses against other assessable income.

The advantages remain, however, in relation to income tax, capital gains tax, asset protection and even retirement planning (the latter often in conjunction with or instead of self-managed super funds). Special provisions exist for distributing funds tax-free to dependent children who have disabilities, too.

How To Set Up Trusts?

Establishing a family trust isn’t simply a matter of clicking on a form and filling in the details. Accounting and taxation expertise is required to ensure the criteria for the FTE is met and that the trust is set up to maximise the benefits. The trust needs to be set up to meet the investor’s goals and needs, and the investor needs to understand all the risks and benefits to make the most out of a trust for themselves and their family.

If you would like to speak with a professional investment adviser about setting up a family trust, contact United Global Capital today on 03 8657 7640 or email for a no cost, no obligation consultation.

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