Are Family Trusts the New Super?

family-trustsWith the changes that are proposed to superannuation by the Federal Government as part of their May 2016 Budget, superannuation is looking a much less attractive option as a strategy for wealth management planning. Could family trusts become the new super?

A family trust is usually set up to conduct a family business or to hold a family’s assets. They have three key advantages to using them:

  1. They can help to protect a family’s assets from the liabilities of one or more of the family members;
  2. There are no restrictions into how much money can be put in or taken out and the trust can hold any type of asset;
  3. They can reduce household tax bills by family members utilising their tax-free thresholds.

The cost of running a trust is around $2,000 per year. The amount needed to make them worthwhile is dependent on an individual’s tax rates and ultimately how much tax can be saved each year.

One of the most common family trust structures is appointing a couple as trustees and all family members as beneficiaries. There is also the option to appoint other family members, such as grandparents, or a corporate beneficiary. The latter would generally only work where the trusts are large and the beneficiaries marginal tax rates are greater than 28.5%.

A family trust works as a tax management tool by offsetting capital gains and earnings against the beneficiary on the lowest marginal tax rate. Assets can also be left to beneficiaries without having to transfer ownership of the assets.

Family trusts are not for everyone and care needs to be taken around setting up the trust and on how distributions are treated. If you are considering setting up a trust or would like further information, please give us a call.