A family trust is a vehicle used to protect assets, manage wealth, and ensure financial security for loved ones. Here’s a streamlined guide to setting up a family trust.
What is a Family Trust?
A family trust is a legal entity where a trustee (e.g. parents) holds and manages assets on behalf of specified beneficiaries (e.g. children). It offers benefits such as asset protection, tax minimisation and estate planning (retirement financial planning).
Steps to Set Up a Family Trust
- Define the Trust’s Purpose: Determine why you need the trust—is it for tax minimisation, is it for retirement financial planning or asset protection. This decision will guide decisions on how the trust is structured and managed.
- Choose the Type of Trust:
- Discretionary Trust: Offers a deal of flexibility, allowing the trustee discretion as to which beneficiaries receive the income and assets of the trust (though separate tax problems can be created if distributions are not made to family members)
- Fixed Trust: The trustee has no discretion and must distribution to beneficiaries specified in the trust deed.
- Testamentary Trust: This is a trust created upon death, ideal for estate planning (retirement financial planning).
- Select the Trustee(s): The trustee manages the trust’s assets and distributes them according to the trust’s terms. The trustee ordinarily will be an individual or a company (if a company, the directors of the company will manage the trust).
- Identify Beneficiaries: Decide who will benefit from the trust. This might include immediate family, extended relatives, or future generations.
- Draft the Trust Deed: A trust deed is a legal document which details the trust’s purpose, trustee responsibilities, and rules on distributions. It’s crucial to work with a financial advisor Melbourne, estate planner or lawyer to ensure the trust deed is compliant with trust law requirements.
- Transfer Assets to the Trust: Transfer assets such as real estate, investments, cash or business assets into the trust. This step legally places the assets under the trustee’s control for management on behalf of the beneficiaries.
- Set Up a Tax File Number and Bank Account (if needed): If the trust is likely to make profits, you will need a Tax File Number to lodge annual tax returns with the ATO. Opening a bank account in the trust’s name will also be required.
- Regularly Review the Trust: Family circumstances and laws change. Review and update the trust deed, whether alone or with a financial advisor Melbourne, to reflect new situations like births, deaths, divorce, separation or changes to the law.
Common Mistakes to Avoid
- Choosing the Wrong Trustee: Select a trustworthy and experienced person(s) to act as trustee (either as individuals or as directors of a company).
- Neglecting Tax Implications: Mismanagement can result in significant tax liabilities, such as capital gains tax and stamp duty—consult a Melbourne business accountant such as Nobel Thomas for further information.
- Ignoring Updates: Life changes may require updates to the trust deed to keep the trust aligned with family goals.
A family trust, when properly set up, can safeguard assets, manage wealth efficiently, and provide for future generations. Work with a qualified financial advisor Melbourne, lawyer, estate planner or accountant to ensure the trust meets your specific needs.
