Whether you’re looking to protect assets, reduce tax liabilities, or plan for succession, setting up a family trust can offer significant benefits. In this blog, we’ll guide you through the key steps to setting up a family trust in Australia.
What is a Family Trust?
A family trust is a structure set up to hold assets or run a business for the benefit of family members. The trustee of the family trust (i.e. the decision maker) has the discretion to decide how the trust’s income and capital are distributed among the beneficiaries. These trusts are commonly used to:
- Protect family assets
- Minimise tax through legal income splitting
- Facilitate intergenerational wealth transfer
- Provide for minors or vulnerable beneficiaries
Step-by-Step Guide to Setting Up a Family Trust
- Choose the Trustee
The trustee is responsible for managing the trust and making decisions on behalf of the beneficiaries. The trustee can be an individual or a company. Using a company trustee can provide additional asset protection and administrative benefits.
Tip: Consider using a business accountant Melbourne, like Nobel Thomas, for advice including to decide whether a company trustee will be used. Ordinarily, a company trustee is preferable if the trust will own significant assets or operate a business.
- Appoint the Settlor
The settlor is the person who creates the trust by giving a small initial amount (usually $10) to the trustee to hold on trust. The settlor should be someone unrelated to the beneficiaries (e.g., an accountant or lawyer) and will have no ongoing role in managing the payments and income flowing through the trust.
- Decide on the Beneficiaries
The beneficiaries are the individuals or entities who may benefit from the trust. Typically, this includes family members such as spouses, children, and even future generations.
- Create the Trust Deed
The trust deed is a legal document that outlines the terms and conditions of the trust. It includes:
- The name of the trust
- Details of the trustee and beneficiaries
- Powers of the trustee
- Distribution rules
- Duration of the trust (up to 80 years in most states)
It’s essential to have a lawyer or an accountant Melbourne, such as Nobel Thomas, establish the deed to ensure it meets your goals and complies with legal requirements.
- Settle the Trust
The settlor provides the initial settlement sum (e.g. $10 as mentioned earlier) to the trustee. This formally establishes the trust.
- Apply for an ABN and TFN
The trust will need to register for a Tax File Number (TFN) and Australian Business Number (ABN) if it will operate a business or earn income.
You can register these with the ATO through the Australian Business Register (ABR) or your business accountant Melbourne can do it for you.
- Open a Bank Account
Open a separate bank account in the name of the trust. This account should only be used for trust-related transactions. Your accountant Melbourne can also assist with the bank setting up process including liaising with the bank to set up the account for you.
- Maintain Proper Records
The trustee is required to keep accurate records, including:
- Financial statements
- Trustee resolutions
- Distribution minutes
- Tax returns
We suggest to use an accountant Melbourne to ensure good compliance and accurate record keeping.
Other Considerations
- Stamp Duty
Some states (e.g., NSW and VIC) require stamp duty to be paid on the trust deed within a certain timeframe after the trust is set up. In Victoria, the stamp duty amount is $200. Penalties apply for late payment.
- Ongoing Compliance
Trusts must lodge annual tax returns, and trustees must make resolutions before 30 June each year to determine how income will be distributed to beneficiaries. A business accountant Melbourne can help with both of these requirements.
- Legal and Tax Advice
Setting up a trust has long-term implications. Seek professional legal and tax advice to ensure it’s the right structure for your situation and that it’s set up correctly from the beginning.
Final Thoughts
A family trust can be a powerful tool for managing wealth and protecting your family’s financial future. Getting the structure right from the start, supported by expert advice, is crucial.
If you’re considering setting up a family trust, speak to your accountant Melbourne, such as Nobel Thomas, or legal adviser to explore your options and ensure it’s tailored to your family’s needs.
