Structures
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Structures
“I pay whatever tax I am required to pay under the law, not a penny more, not a penny less… if anybody in this country doesn’t minimize their tax, they want their heads read because as a government, I can tell you you’re not spending it that well that we should be donating extra.”
-Kerry Packer
As you start accumulating wealth through life, you may start to think about how to protect it, how it will be managed when you’re gone and how to effectively structure it to your advantage.
The questions many of us ask ourselves are:
Who should receive the benefits of the wealth, both now and in the future?
Does the wealth need to be protected against potential and future misfortunes?
Are there any special considerations as to who should own assets or receive income, both now and in the future?
What are the tax implications of each structure?
What estate planning issues need to be addressed?
In the next few weeklies, we will provide a basic run down of 3 common structures available to Australian’s that are worth exploring kicking off with Family Trust.
Family Trust
What is it?
A type of discretionary trust, created for the purpose of holding and managing wealth assets, commonly used as the structure for a family business. It is managed by appointed trustee/s for the benefit of the beneficiaries.
How does it work?
By transferring assets to the trust, the appointed trustee/s are then responsible for managing the trust’s assets and making decisions about how the assets are used and income distributed to the beneficiaries.
What are the main benefits?
The main benefits are asset protection, tax planning and flexibility in managing assets. The family trust is often seen as a flow-through entity, meaning trust income can be distributed to beneficiaries who may be in more tax effective brackets.
Who can be a trustee?
Any adult can be a trustee of a trust, but it is important to choose someone who is trustworthy and has the necessary skills and experience to manage the trust. It is equally important to set out the guidelines in the deed from the onset regarding appointing and replacing trustees and how income should be distributed to avoid potential future family disputes.
How are they set up?
It is set up using a legal document called a trust deed, which outlines the terms and conditions of the trust. The trust deed must be executed by the settlor and trustee, and the trust must be registered with the Australian Taxation Office (ATO).
What else should you consider?
It is important to seek thorough tax and legal advice from suitable qualified professionals before establishing a family trust as there are many factors to consider. It is worth noting, assets are held in trust and not “owned” by you, therefore do not form part of your estate and not subject to your will.
As always please reach out to the team if you like to discuss further.