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Setting up a Family Trust in Australia – a Starters Guide

If you’re considering expanding your business, transitioning from a sole trader to a more formal business structure, or seeking effective ways to protect and manage your assets, setting up a Family Trust could be the solution you need. In Australia, Family Trusts are a popular choice for families and business owners looking to safeguard their assets and optimise their financial management. This guide will explore the key aspects of setting up a Family Trust, including its benefits, the steps involved, and important considerations.


What is a Family Trust?

A Family Trust is a legal arrangement where a trustee (often a company) holds and manages assets for the benefit of the Family Trust’s beneficiaries. Known also as a Discretionary Trust, a Family Trust gives the trustee discretion over the distribution of income and capital to the beneficiaries. This arrangement is formalised through a legal document called the “trust deed,” which outlines the roles and responsibilities of the settlor, trustee, beneficiaries, and appointor.

Why Setting Up a Family Trust is Popular

 

Tax Flexibility

One of the primary benefits of setting up a Family Trust is its tax flexibility. By distributing income among family members or entities, you can potentially reduce the overall tax burden. This is particularly useful if some beneficiaries are in lower tax brackets or have tax losses.

Asset Protection

A Family Trust provides significant asset protection, especially for individuals exposed to business risks. By holding assets within a Family Trust, you can shield them from potential claims against personal or business liabilities.

Business Succession

Family Trusts are an effective vehicle for transferring business interests or investments across generations. They ensure that assets are managed according to your wishes, facilitating a smooth succession process.

Ease of Operation

Family Trusts are relatively straightforward to understand and manage. They offer an effective way to own appreciating assets, such as businesses or property, while benefiting from tax concessions like the 50% general discount on capital gains.

Key Elements of Setting Up a Family Trust

 

  1. Trust Deed. This legal document defines the terms and conditions of the trust, including beneficiary rights, distribution rules, and provisions for amending the trust deed.
  2. Establishment by a Settlor. The Family Trust is settled with property by a settlor, who transfers assets into the trust. The settlor is responsible for initiating the trust and setting the foundation for its operation.
  3. Beneficiaries. The beneficiaries of a Family Trust are typically family members or related parties to the named family members (spouse, cousin, etc). These individuals or entities stand to benefit from the Family Trust’s income and assets as specified in the trust deed.
  4. Trustee Management. The trustee manages the Family Trust’s assets, makes decisions on behalf of the Family Trust, and distributes income or capital to the beneficiaries. The trustee’s duties and powers are detailed in the trust deed.
  5. Appointor. The appointor holds significant power within the trust, including the ability to add or remove trustees, alter the trust deed, and modify the list of beneficiaries. Understanding the appointor’s role is crucial, as they wield considerable control over the trust’s operation.

Setting up a Family Trust can be a strategic move for managing and protecting your assets, especially if you are looking to optimise your tax position and secure your family’s financial future. By understanding the key components and benefits of a family trust, you can make informed decisions that align with your financial goals.

For personalised guidance on setting up a Family Trust and ensuring it meets your specific needs, contact Rogerson Kenny Business Accountants today. Our expert team can help you navigate the complexities of trust arrangements and maximise the advantages for your family’s financial well-being.

Get in touch with Rogerson Kenny Business Accountants now to start setting up your family trust and safeguard your financial future!

 

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