What’s a Family Trust? Why do I Need one?

A family trust, also known as a ‘discretionary trust’ is a private legal arrangement in which the ownership of your assets such as cash, stocks, real estate and family heirlooms (like antiques or fine art) are parked in an account and managed by an individual or group. It’s a way of structuring your finances to protect your assets and reduce tax bills.

It’s essential to have help from a lawyer when setting up a family trust deed to avoid any mistakes and optimise your benefits.
It’s essential to have help from a lawyer when setting up a family trust deed to avoid any mistakes and optimise your benefits.

Most commonly, a family trust is set up by a family member for the benefit of the family. If your family owns a private business or has another means of income such as an investment property, a trust can provide your family with several financial advantages.

However, setting up a family trust can be a complex matter and requires careful planning and understanding, so you should always seek professional advice from a lawyer beforehand.

To lend you a helping hand, we have put together a guide to get your started:

How does a Family Trust Work?

The aim of a family trust is to provide tax protection and asset protection. Once your assets are transferred to the trust, they are then owned by the trust itself. The purpose of this is to segregate your assets from your personal estate which effectively shields those assets from creditors in the event of bankruptcy proceedings or plaintiffs in lawsuits. The trust then appoints a trustee to manage the distribution of any income the trust generates to its beneficiaries.

What are the Benefits of having a Family Trust?

A family trust can benefit your family in several ways including:

  • Protecting your Assets – The trust holds all assets in place so you are protected from creditors if you ever encounter personal financial issues.
  • Improving Control of your Assets – You can simply manage the assets of individuals who are too young or incapacitated to handle their own financial affairs.
  • Streamlining Estate Planning – The trust allows you to pass property down to the next generation without any disputes which can often arise in the case of a Will. (See everything you need to know about contesting a Will here).
  • Lowering Income Tax – By distributing the trust’s net income and capital gains to beneficiaries, this may translate into great tax savings for your family.

Who are the Key Parties in a Family Trust?

A family trust can be made up of several parties depending on your individual circumstances. Here are the main ones:

Appointer – Often this is the most senior person in the family who wants to set up the trust. Their role is to direct the trustee with who should receive the income or capital from the trust. As such, they are the person with the most control of the trust’s assets, but they are not involved in the day-to-day proceedings of the trust (that’s the trustee’s job)!

Settlor – The settlor is only involved in the setup stage of the trust. They give the trustee initial assets to hold under the terms of the trust deed. For tax reasons, the settlor should be someone with no other connection to the trust such as a family friend, lawyer or accountant.

Trustee/s – The trustee can be an individual or company listed as the legal owner of the trust’s assets under the terms of the trust deed. You can appoint more than one trustee within your trust. They are responsible for managing the assets and distributing any income from the trust.

Beneficiaries – A beneficiary is a person or company who may benefit from the trust. They’re entitled to receive the trust’s income and capital gains if the trustee nominates them, but they do not have any control of the trust.

How do you set up a Family Trust?

There are generally six steps when it comes to setting up a family trust:

1. Select a Trustee
This person or company must be dedicated to growing the assets and caring for the trust.

2. Draft the Trust Deed
This outlines the terms of the trust and the role of each party selected for the trust.

3. Settle the Trust
This is completed when the settlor signs the trust deed and gives the initial settlement sum.

4. Sign the Trust Deed
The trustee/s must review and agree to the terms of the trust deed and finalise through signing it.

5. Apply for an ABN and a TFN
After the trust has been established, you must apply for both an ABN and TFN.

6. Open a Bank Account for the Trust
The bank account is usually in the name of the trustee who will manage it.

Do you need help from a lawyer?

It’s crucial to have help from an experienced lawyer when drafting up your family trust deed. A trust deed governs how the present and future state of your family’s finances will work and if you make any mistakes or changes after it has been set up, this could result in severe tax implications. Having a lawyer by your side ensures there’s no room for errors so you can swiftly protect your assets and get your financial benefits underway.

At Le Brun & Associates, we understand that setting up a family trust is an extremely important process contributing to your family’s livelihood. That’s why we provide a free 30-minute consultation to discuss the best options for you. If you need advice or more information on family trusts, contact us today.