The Family Trust protects assets and saves tax
A Family Trust is a popular vehicle set up by accountants and financial planners. It is great for both wealth creation and asset protection:
1. each year pay trust income to family members on low marginal tax rates
2. protect assets from creditors
3. succession planning - no CGT or stamp duty when you die
Your adviser and accountant have many strategies. They can set up loans from the trust to family members to buy investments. This delivers wider tax breaks. Or they can invest in insurance bonds to access lower aged care fees. Legal Consolidated's Family Trust is cutting edge to allow your accountant and adviser to seek all tax savings.
A family trust is a discretionary trust. It is Australia's most popular way of holding family's assets or running a family business. It is commonly used to hold shares and units in a Unit Trust.
Pay less tax - hunt down family members on low marginal tax rates
The Appointor is usually mum and dad. The Trustee is often their company. The Appointor tells the Trustee who gets the trust income each year.
For example, Mum is earning a lot of money. She pays a high tax rate. Stay at home Dad earns no income. The children at university earn only a little income from part-time jobs. The Discretionary Trust merely distributes the yearly income to these beneficiaries on low incomes. The tax rate is as low as zero. Next year one of the children finishes at university and gets a job. They now pay a high marginal tax rate. Not a problem. The Discretionary Trust does not now distribute to them. Every year you hunt down family members on low marginal tax rates.
Family Trust beneficiaries include mum and dad, their company, adult children, children's spouses, grandchildren and their spouses. When required, capital is distributed to beneficiaries with capital losses. This is called streaming.
Reduce land tax
Own more than one property? The more property in one person's name the higher the marginal land tax rate. Instead, hold each property in a separate Family Trust with a different Trustee. You, therefore, take advantage of the tax-free threshold for each property. Secondly, you pay a lower marginal tax rate for each property.
a. Company vs Family Trust - CGT concessions trapped in a company
Discretionary Trusts often hold appreciating assets such as shares or land. CGT relief flows through to the beneficiary. Capital gains are taxed at concessional rates. In contrast, when you dispose of an asset out of your company the CGT concessions are lost. You can't get them out of a company.
Also, when a trust makes a capital gain, 50% of the amount is tax-free. This is provided that the asset is held in the trust for over 12 months.
b. Last Will & Testament vs Discretionary Trust - you can't challenge a Discretionary Trust
Your children's divorce, spendthrift children and conniving children-in-law can't touch the assets in your Family Trust. The only person that can attack your Family Trust is your spouse. In contrast, many people including parents, children and grandchildren can challenge your Will. Except for NSW, the Discretionary Trust quarantines assets from your Will.
A Will and your estate are contestable. However, a Family Trust is a separate entity to you. The trust assets are harder to attack.
c. Superannuation vs Discretionary Trust - super traps your money
Superannuation is a wonderful tax haven. The tax rate, going in, is 15%. But the money is locked away until you retire. Unlike a superannuation fund, your assets in a Family Discretionary Trust are not locked away. Also, potentially, you can get the tax rate down below 15%, even to zero. This is if you have beneficiaries on low incomes.
Often your accountant and financial planner maximise your super contribution levels first. They then put surplus funds into the Family Trust.
Why use the expression 'discretionary' trust?
A discretionary trust is often called a Family Trust or Family Discretionary Trust. It means the same thing. It gives the Trustee (acting under the Appointor) huge discretion on who gets the trust income each year.
Each financial year the Appointor tells the Trustee which beneficiaries are to get that financial year's income.
Until the Trustee exercises its discretion, the beneficiaries have no interest in the trust property. This means that your children have little power to try to get money out of the trust.
Every year the Trustee can decide who gets trust income. The Trustee hunts down beneficiaries on low tax rates and uses those low tax rates to pay less tax. The beneficiaries rarely see any money out of the trust. Each year they merely forgive the debt by signing a Debt Forgiveness Agreement.
Trustee vs Appointor - which one is god?
There is only one power in a Family Discretionary Trust. That person is the Appointor.
The Settlor primes the trust with a few dollars. The Settlor is heard of no more.
The Trustee is merely the Appointor's puppet.
The beneficiaries get nothing out of the trust. This is unless the Appointor tells the Trustee something different. The Default Beneficiaries only get something if the Appointor forgets to tell the Trustee to distribute income and capital. (This almost never happens.)
Advantages in building a Legal Consolidated Family Trust
Our lawyers are elite taxation and trust lawyers. We hold professorships and doctorates in these areas. We ensure:
1. Streaming – franking credits, attribution and separate accounts to reduce CGT & income tax, complies with Thomas v FCT  FCAFC 57
2. Bamford’s Case – definition of Net Income – satisfies ATO
3. Loss Recoupment – retain and stream losses to particular beneficiaries
4. Appointors to act unanimously – so two Appointors can’t take the assets over the 3rd Appointor
5. Bank loans to the Discretionary Trust – the required bank clauses and Indemnity rights (CBA, NAB, ANZ & Westpac)
6. Bank loan Compliance Certificate signed on our law firm’s letterhead
What do I get?
Within seconds of building the Discretionary Trust Deed online you get via email:
1. Family Discretionary Trust Deed setting out the rules of your trust, naming the Trustees and Appointors
2. Minutes to set up the Trust, as required by your accountant and the ATO
3. Trust Opinion Certificate on our law firm's letterhead, signed by one of our lawyers
4. The law firm's covering letter confirming our law firm build the Discretionary Trust Deed
Telephone us if you need help answering the questions.
Update the Family Trust for Bamford streaming only:
Or, update Bamford streaming PLUS update the rest of the Deed:
Instead, update for Bamford streaming PLUS the Deed PLUS update the Appointor & Trustee:
Or just update the Trustee:
Or just update the Appointor:
Deal with Division 7A (loan or UPE from your company to the Family Trust):
Or, to forgive the 'loan account' and UPEs (loans from humans to Family Trust):
Change the name of your Family Trust:
To wind up and vest the Family Trust, when you no longer want it:
Telephone us for legal advice on building this document.
Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
Toll free: 1800 141 612
Mobile: 0477 796 959