A family trust is about more than tax : 10 reasons to prove it

It is a common practice foe Australian for family businesses to operate through a family trust — however recent media would make it look like these families are tax avoiders! A family trust is often established for income tax purposes and capital gains tax purposes and these reasons can be significant.
However, there are more benefits of having a family trust besides the tax savings. We go over a few reasons why you might want a family trust other than tax minimization.
The following are 10 reasons why your family needs a trust:
1. Asset Protection
Assets in a family trust are owned by and benefit the entire family. So the direct tracing of a family trust asset back to a single family member who is under attack in the courts is much more difficult.
Often a family business goes across the whole family. If the asset was owned by one person then the actions of that person would hurt the rest of the family. Thankfully a family trust, properly done, can help stop this.
2. Low Start-up Costs
The costs of initiating a family trust are relatively low. An online law firm can create a family trust for around $300 (however that does not consider strategy and advice as to why and how the trust should be created).
And since a family trust isn’t operating in a superannuation area, the complex superannuation rules do not apply. Further, family trusts do not require a financial product advisor. Tthe yearly maintenance fees of a family trust (no advice and a cash investment) usually start out at less than $1,000.
3. Estate Planning
A family trust opens a world of opportunities when it comes to estate planning. Different trusts can be controlled by different persons with different beneficiaries and they can enjoy a lot of discretion on what to do.
This trust flexibility used in conjunction with an operational family charter can give your estate flexibility with good governance.
4. Investment Choice
Unlike other business structures, a family trust is effectively free to invest in any asset it wishes, no matter the asset type or reason. Of course the trust deed might have an impact — but the generic nature of most deeds allow a family trust a lot of flexibility when investing.
This compares to a superannuation fund environment where the sole purpose of the investment is for the retirement of the superannuation family members.
5. Land Tax
In Western Australia, for land tax purposes, each family trust is considered a separate “person.” And as land tax is applied at marginal tax rates (including a tax free threshold) the family trust will enjoy the lower marginal rates and potentially pay lower land tax overall.
This essentially means that a family trust can greatly reduce the amount of land taxes that a family must pay.
6. Legacy Preservation
Most would assume that the members of a family trusts are the traditional members of a family, such as parents, siblings, children, grandchildren, nieces, nephews, and spouses. However, this doesn’t have to be the case.
You can specifically define the family members you wish to include and who you wish to exclude. This exclusion can be effective and stop that family member from benefitting from the trust. For example, you can opt to exclude in-laws or relatives by marriage. Your trust then becomes more of a lineal descendant trust, which will potentially help protect your family’s future assets from court attach or it can allow the trust to operate within the clear, narrow, guidelines of the family business constitution.
7. Easy Access to Funds
One of the best benefits of a family trust is the ability to access funds early. Funds can be withdrawn from a family trust immediately, no matter the reason why said funds were added to the trust. This compares to a superannuation fund where there are restrictions on how you can access money.
8. Flexibility
A family trust has the ability to support children and/or family members at different times throughout the year. This ability is unlimited and the family members who benefit from the trust can be changed yearly. The beneficiary can change in future years without any negative repercussions.
If a family had a policy of rewarding family employees in the family business this will allow the additional income allocations to wax and wane depending on the involvement of different family members at different stages of their life.
9. Unlimited Contributions
There is no limit to the amount of money that you can lend to, and then invest in, a family trust. Family trusts are extremely accommodating when it comes to accepting assets.
This again is in comparison to superannuation funds where the government’s recent clampdown on superannuation contributions has made many families reconsider their strategy on where they will accumulate their business wealth.
10. Privacy
Successful family businesses are often admired and sometimes envied. However the public scrutiny can turn to the family behind the business and their level of personal success.
For some family businesses that operate in a company structure they become obligated to disclose their financial information to the world at large. Do you really want your customers or competitors to know your net profit? If your family business is highly successful, a family trust, properly structured, can ensure that certain financial information does not become public.
Conclusion
If your family business accountant is simply talking about a family trust for within an income tax or capital gains tax framework, then they might be missing out on several key other benefits. A family trust can be a useful planning tool as well as a way to protect your family’s assets, operate within your family charter and ensure your legacy for future generations.
About Westcourt
Westcourt is a committed firm of family business accountants based in Perth. We have one focus — making family owned businesses great. That targeted focus gives us a deep understanding of the drivers and motivations behind families in business and allows us to develop strategies that are tailored for families in business.
So email the director at ross.forrester@westourt.com.au or go to www.westcourt.com.au for great advice on taxation, succession planning, family business, superannuation and succession planning for families in business.