How to Set up a Family Trust
There’s a common misconception that a trust fund is only for the extremely wealthy – we’ve probably all heard of “trust fund babies”. But this simply isn’t true. A trust fund can be just as beneficial to “comfortable” households who want to protect their family and business assets.
A Family Trust fund – also known as a Discretionary Trust – is used to protect an individual’s or family’s assets. It provides the trustee discretion over who receives what and when over a period of time. They can provide more flexibility around who shares the tax burden among family members. It can also offer more control if the beneficiary is too young or irresponsible to take on the full financial burden.
Who would find a Family Trust fund useful?
Providing it’s set up correctly, a Trust Fund can be a savvy financial tool to anyone who wants to protect what they have such as:
- High earners who are in the high tax bracket but have low-income earners in their family to hand out the wealth to;
- Someone who needs to protect their asset against creditors – once in a trust they are effectively out of reach in bankruptcy proceedings;
- Those with multiple properties who want to manage land tax more efficiently;
- Investors who know the brutality of a relationship breakdown and want to protect their assets more robustly.
How to set up a Family Trust
A Family Trust is something that’s relatively easy to set up and is recognized across all Australian states.
There are six steps to setting up a family trust:
- Select a trustee – This can be a person, a group of people or private company that has been set up to manage the trust. It’s a good idea to set this up as someone completely separate from your family, a lawyer, accountant or similar professional often act as trustees. Ultimately the person or company you choose should not only be someone who understands the responsibilities of the role but who has integrity after all, you’re trusting them with your family’s wealth.
- Draft the trust deed – This sets out the terms and conditions of the trust. Trust deeds can be complex and are completely specific to your circumstances so this is something a lawyer will need to help you with
- Settle the trust – This is done when the settler signs the trust deed and gives the initial settlement sum. A settler can be a friend – preferably someone unrelated to the beneficiaries – who will no longer involved once the settlement is finalized.
- Sign the trust deed – Once the settler has signed the trust deed, the trustee or trustees must agree to the terms of the trust deed and sign it.
- Apply for an ABN and a TFN – After the trust has been established these applications for an ABN and tax file number should be made.
- Open a bank account for the trust – The last step in setting up a family trust, the bank account should be in the name of the trustee. You may also be asked for the ABN of the trust by the bank before they can open the account.