Consider a family trust as an investment vehicle
Many taxpayers and investors consider self managed superannuation funds as an investment vehicle of choice but few consider the merits of a discretionary trust or a family trust.
What is a Discretionary Trust?
A trust is essentially a structure where the “trustee” holds assets on behalf of other person (s) being the “beneficiaries”
An example of a discretionary trust is a family trust. A family trust is a discretionary trust where all the beneficiaries are essentially family members and or relatives.
The key feature of a discretionary trust is that each of the beneficiaries do not have a legal entitlement to the assets or income of the trust, that is, the allocation of income or assets of the trust is at the complete discretion of the trustee.
Take for example, a family trust where Dad and Mum are the trustees and the children are the beneficiaries. If one of the children, lets call him Peter went through a divorce then the family law settlement would not be entitled to allocate any assets in the trust that have not previously been distributed to him. On the other hand if the Mum and Dad had gifted monies to Peter to buy a family home then these funds would come within the parameters of the family law settlement.
In addition to the protection of the family assets there are also tax benefits of a Discretionary Trust. The main advantage is each year this income of the trust can be distributed to the lowest tax paying beneficiary. For a family where some of the children are not working or in the early stages of their career these tax savings can be substantial.
Other advantages of a Discretionary Trust are:
- No limit on contributions to the trust. Whereas with a Self Managed Superannuation Fund you are restricted on how much you can contribute each year.
- No limits on what assets can be transferred into a Discretionary Trust. You can only transfer business real property and listed securities into a Self Managed Superannuation Fund, for example.
- There is no age limit to access the funds. For example with a Self Managed Superannuation Fund you need to reach age 55 if born before 1960 or age 60 if born after 1965.
- You can hold personal use assets in a family trust, such as a holiday home. This is not the case in a Self Managed Super Fund.
- You can also run a business out of a discretionary trust.
To ensure that your Trust is structured and administered correctly please contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
Disclaimer: The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.