Is a family trust a good solution for you?
21 Mar 2019
By Shadforth Financial Group
Family trusts can help you protect your assets, manage your family’s tax more efficiently and enable you to provide an income stream to a vulnerable family member.
To decide whether a family trust could be good for your family it’s important to understand how they work and the advantages and disadvantages.
What is a family trust?
A family trust is a trust that commences during your lifetime to manage certain family assets or investments and to support family member beneficiaries. The trust is governed by a trust deed which sets out the trust’s rules. A trustee is appointed to manage it and is legally responsible. The trust deed and the trustee determine how income generated is distributed amongst beneficiaries.
Who can be beneficiaries of a family trust?
Beneficiaries of a trust must be family members. That is, your spouse, siblings, parents, grandparents, children, nieces and nephews. In addition, your spouse’s family, any family companies, other family trusts and registered charities can be beneficiaries.
What are the advantages of family trusts?
Family trusts can protect family assets from future marriage breakdowns, challenges to a Will or bankruptcy because the assets belong to the trustee and not the individual. Therefore, they are less likely to be included as part of a property settlement than if they were held by an individual. They can also assist in avoiding challenges to a Will or being used to pay creditors (unless the assets were placed in the trust to avoid creditors).
Retaining important family assets within a family group, for example a farm, can also be a good reason to hold assets in a family trust.
Protecting vulnerable family members
Family trusts can help protect vulnerable family members who may make unwise spending decisions if they controlled assets in their own name. You can provide a spendthrift child with a periodic income but not access to a large sum that could be easily spent.
Family trusts may also provide tax benefits to help the family group manage the tax liabilities of the family unit as a whole. This can be particularly useful when supporting adult children who are studying or older parents who are retired as they are likely to be on a low tax bracket.
There are also disadvantages in establishing a family trust including tax outcomes, expenses and management difficulties if family disputes arise.