10 Benefits of a Family Trust

A family trust is often used by Australian families in businesses. The practice often arises because of the the income tax and capital gains tax benefits that a family trust provides family-based businesses.  However a trust is a powerful family tool independent of Income tax and capital gains tax

10 Benefits of Establishing a Family Trust

Land Tax

We’ve established that family trusts are often created for tax benefits, but many family businesses usually overlook the land tax benefits of having a family trust. For land tax purposes in Western Australia, a family trust is considered a separate “person” or entity. This can greatly reduce marginal land tax rates payable by a family.

Protection of Assets

A family trust can protect assets from bankruptcy, death, or loss of capacity of any of its beneficiaries. This is because trust assets are owned by the family as a whole and not individual family member beneficiaries.

Financial Privacy

Successful families are often under public scrutiny (sadly).  The local prominence of the family is a by-product of their successful business and the desire for a family to keep their affairs private is very high.

The Corporations Act requires large proprietary companies to disclose financial information to the public.  However, family trusts are exempt from the requirement to publicly disclose their financial information.

Preserving Family Legacy

A family trust often includes parents, grandparents, siblings and their children, sons, daughters, and their spouses. However, you have the ability to define which family members you would like to include in the current years participation of income or capital. This is important if you’re not yet sure of family members like a new in-law. You can opt to not yet include your children’s spouses in the participation of a family trust income and capital.  Further the trust could be limited so that the only people who participate are your direct decedents.

If a family trust is set-up properly, then the trust can potentially provide protection from certain courts. A trust used in this way makes for an excellent starting point for protecting family assets.

Estate Planning

A will has no bearing on a family trust since they are not considered part of an estate. This opens many opportunities regarding estate planning.  The problem with wills regarding highly influential families is that they are often contested in courts due to the high value of family assets.

If your estate requires flexibility for changing business conditions, then a family charter is often created to provide the family with direction for the future. The family charter and the family trust would then work together to operate the trust in accordance with your wishes and give the family the ability to change.

Early Funds Access

Unlike other tax entities like a superannuation fund, funds in a family trust can be withdrawn immediately and at any time. This applies to funds that were deposited into the trust for future planning.

Fewer Restrictions

When it comes to investment choices, family trusts are faced with fewer to no restrictions. Family trusts are free to invest in any assets it so wishes (tax law can change depending on the use of companies: but the law targets the company moreso than the trust).

Yearly Flexibility

A family trust has the unlimited capability to support different family members throughout the year. The trustee can decide which family member should benefit from the trust on a yearly basis. This choice made by the trustee can be changed in later years with no issue.

Unlimited Contributions

There is no limit to the amount of that you can lend to a family trust.  This compares to an entity like a superannuation fund which has strict contributions. 

Low Operating Costs

The start-up and operating costs for a family trust are very reasonable. An online law firm can create a family trust for around $300 (however that cost would not address the opportunities that can be created for your family).  Further family trusts are not required to seek the guidance of a financial product advisor and maintenance fees start around $900 per year for simple entities.

In Conclusion

A family trust is a great way to not only lower taxes for your family business but it can also work to preserve your legacy, protect family assets, and plan your estate. If you’re considering a family trust for taxation purposes, we suggest that you speak with a financial professional to determine other ways you may benefit from a family trust.

About Westcourt

Westcourt is a committed firm of family business accountants based in Perth.  We have one focus – making family owned businesses great.  That targeted focus gives us a deep understanding of the drivers and motivations behind families in business and allows us to develop strategies that are tailored for families in business.  So email the director at ross.forrester@westourt.com.au or go to www.westcourt.com.au for great advice on taxation, succession planning, family business, superannuation and succession planning for families in business.