How to Set Up a Family Trust in Australia

 

When it comes to estate planning and wealth management in Australia, setting up a family trust has gained substantial popularity as an influential strategy for preserving assets, minimising tax liabilities, and ensuring seamless wealth transfer across generations.

For individuals and families in Australia, establishing a family trust can offer a plethora of benefits.

Whether you’re aiming to protect your family’s financial future or gain a better understanding of trust structures, this guide will serve as a valuable resource.

 

What is a Family Trust?

 

A family trust, also known as a discretionary trust, is a legal arrangement that allows for the management and distribution of assets for the benefit of a specified group of individuals – often family members.

The trust itself is a separate legal entity, managed by a trustee who holds and administers the trust’s assets by the terms of the trust deed.

 

Benefits of Setting up a Family Trust

 

Setting up a family trust offers several advantages, including:

 

Asset Protection

 

A family trust can shield assets from potential legal claims, ensuring that they are protected for the benefit of your chosen beneficiaries.

 

Protection for Vulnerable Beneficiaries

 

It further provides a mechanism of protection for vulnerable beneficiaries who may not be in the best position to make financial decisions for themselves, such as minors, those with disabilities, or those who have poor financial management skills.

 

Tax Efficiency

 

One of the most significant benefits is the potential for tax minimisation.

Family trusts can distribute income among beneficiaries in a tax-effective manner.

 

Wealth Preservation

 

Family trusts enable you to control how your assets are distributed, ensuring that your wealth is preserved and managed according to your wishes even after your passing.

 

Flexibility

 

The discretionary nature of family trusts provides flexibility in distributing income and assets to beneficiaries based on their specific needs and circumstances.

 

Estate Planning

 

By establishing a family trust, you can facilitate a smoother transfer of wealth across generations.

 

Establishing a Family Trust

 

1. Seek Professional Advice

 

Before proceeding to set up a family trust, it is crucial to consult with experienced legal, accounting, and financial advisors.

This step is critical for tailoring the trust to your unique circumstances and ensuring compliance with Australian laws.

 

2. Define the Trust’s Purpose & Terms

 

Outline the objectives of the family trust and determine how the trust’s assets will be managed and distributed.

The trust deed – the legal document establishing the trust – should clearly articulate these terms and the roles of beneficiaries and trustees.

 

3. Choose the Right Trustees

 

Select trustworthy individuals to act as trustees or to be the directors of a corporate trustee – those responsible for managing the trust’s assets and making distribution decisions.

It is recommended to include both family members and independent professionals to ensure a balanced approach.

 

4. Identify Beneficiaries

 

Define the beneficiaries who will benefit from the trust’s assets. This could include family members, dependents, and future generations.

Keep in mind that the trustee has the discretion to allocate income and assets among beneficiaries under the terms of the trust deed.

 

5. Fund the Trust

 

Identify the assets of the trust and transfer those assets into the trust, which becomes its own legal entity.

This step is critical for the trust to begin its operations and fulfil its intended purpose.

 

6. Obtain an ABN & TFN

 

Register the family trust with an Australian Business Number (ABN) and a Tax File Number (TFN).

This is essential for tax reporting and compliance purposes.

 

7. Manage & Distribute Assets

 

The trustee has the responsibility of managing the trust’s assets and distributing income according to the terms of the trust deed.

This discretionary power allows for flexibility in responding to changing circumstances and needs.

The trustee must keep a thorough record of all transactions related to the trust.

 

Example

 

A couple hold concerns about their children’s ability to manage the assets they are due to receive by way of inheritance.

One child is an irresponsible spendthrift, one child has a severe mental disability, and the youngest child is only ten years of age.

The couple has therefore sought the advice of their lawyer and financial advisor to set up a family trust to protect each child’s inheritance, tailored to each child’s specific needs.

By doing so, the couple can rest assured that each of their children will receive a steady income for the duration of their lives, but can also request larger sums from the trust should they have a genuine need for it.

 

Contact Us

 

Setting up a family trust in Australia demands careful consideration, meticulous planning, and expert guidance.

The benefits of asset protection, tax efficiency, wealth preservation, and estate planning make family trusts a compelling option for individuals and families seeking to secure their financial legacy.

Remember, every family’s situation is unique, so it is essential to adapt these guidelines to your circumstances for the best possible outcomes.

For more information about setting up a family trust in Australia, contact us at Bambrick Legal today. We offer a free, no-obligation 15-min consultation for all enquiries.

You can also read more about our estate planning services here.

Related Blog – Appointing a Corporate Trustee in a Family Trust

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