Family Trust
Creating a family trust in Australia involves several key steps and considerations.
Family Trust
Creating a family trust in Australia involves several key steps and considerations. A family trust, also known as a discretionary trust, is a legal arrangement where the trustee holds and manages assets for the benefit of the beneficiaries, usually family members. This trust structure is commonly used for asset protection, estate planning, and tax management.
Here is a comprehensive guide to creating a family trust in Australia from a solicitor's point of view:
Step 1: Understand the Purpose and Benefits of a Family Trust
Before creating a family trust, it is important to understand its purpose and the benefits it offers:
Asset Protection: Protects family assets from creditors, lawsuits, or other claims against individual family members.
Tax Planning: Allows income to be distributed among beneficiaries, potentially reducing the overall tax liability.
Succession Planning: Facilitates the transfer of wealth across generations while maintaining control over the assets.
Flexibility: Provides flexibility in managing and distributing income and capital to beneficiaries. Step 2: Choose the Type of Trust There are several types of family trusts in Australia, but the most common is a discretionary trust. In this trust: The trustee has the discretion to decide which beneficiaries receive income or capital from the trust and in what proportions.
This type offers flexibility in distributions, making it ideal for tax planning and asset protection.
Other types of family trusts may include unit trusts or fixed trusts, where the distribution to beneficiaries is fixed or determined by their unit holdings. Step 3: Appoint Key Roles within the Trust A family trust requires several key roles: Settlor: The person who establishes the trust by contributing a nominal amount (e.g., $10). The settlor must not be a beneficiary or trustee of the trust.
Trustee: The person(s) or entity responsible for managing the trust assets and making decisions about distributions. Trustees can be individuals or a corporate entity. A corporate trustee provides continuity and limited liability.
Appointor: An individual or entity with the power to appoint or remove trustees. This role ensures control over who manages the trust.
Beneficiaries: The individuals or entities for whom the trust is created. Beneficiaries are usually family members but can also include companies or charities. Step 4: Draft the Trust Deed The trust deed is the legal document that establishes the trust and sets out its terms. It should be drafted carefully to reflect the specific objectives and requirements of the trust. Key elements of the trust deed include: Name of the Trust: The official name by which the trust will be known.
Details of the Settlor, Trustee(s), and Beneficiaries: Clearly identifying all parties involved in the trust.
Trust Property: A description of the initial trust property (usually a nominal amount settled by the settlor).
Powers and Duties of the Trustee(s): Outlining the responsibilities, powers, and limitations of the trustee(s) in managing the trust assets and distributing income or capital.
Distribution Provisions: Specifying how income and capital may be distributed to beneficiaries, considering their circumstances, needs, and tax implications.
Trust Duration: In Australia, a trust can last up to 80 years, after which it must be wound up unless it is terminated earlier.
Conflict Resolution and Amendments: Provisions for handling disputes, amendments, and other administrative matters.
It is advisable to engage a solicitor to draft the trust deed to ensure it complies with relevant laws and meets the specific needs of the family. Step 5: Execute the Trust Deed Sign the Trust Deed: All parties involved (settlor and trustee(s)) must sign the trust deed in the presence of a qualified witness, usually a solicitor.
Settlement Sum: The settlor pays the nominal settlement sum (e.g., $10) to the trustee, officially establishing the trust. Step 6: Register for an Australian Business Number (ABN) and Tax File Number (TFN) A family trust must obtain an ABN and TFN from the Australian Taxation Office (ATO). This is necessary for tax purposes, including filing annual tax returns and distributing income to beneficiaries.
ABN: Required if the trust will carry on a business.
TFN: Necessary for lodging tax returns and other dealings with the ATO. Step 7: Open a Trust Bank Account Open a separate bank account in the name of the trust to manage its finances. The trustee(s) will use this account to deposit income, pay expenses, and distribute funds to beneficiaries. Keeping trust finances separate from personal finances is crucial for legal and tax purposes. Step 8: Transfer Assets to the Trust Transfer the chosen assets (e.g., cash, shares, real estate) to the trust. This may involve:
Stamp Duty: Depending on the type of asset and the state or territory, there may be stamp duty implications. For example, transferring real estate may attract stamp duty.
Capital Gains Tax (CGT): The transfer of assets may trigger CGT. However, there are exemptions and concessions, such as those related to the main residence or small business CGT concessions. Step 9: Manage the Trust and Comply with Legal Obligations Maintain Accurate Records: The trustee must keep accurate records of all trust transactions, distributions, and decisions made in accordance with the trust deed.
Annual Tax Returns: The trustee is responsible for lodging annual tax returns and providing beneficiaries with their share of the trust’s income.
Compliance with Legal and Fiduciary Duties: Trustees must act in the best interests of the beneficiaries, manage the trust prudently, and comply with the terms of the trust deed and relevant laws. Step 10: Regular Review and Amendments Review the trust deed periodically, particularly after significant life events (such as births, deaths, marriages, divorces) or changes in law, to ensure it continues to meet the family's needs. Amendments may require legal advice and must comply with the provisions set out in the trust deed. Additional Considerations: Professional Advice: Seek advice from solicitors, accountants, and financial advisors throughout the process to ensure the trust is structured correctly and complies with all legal and tax requirements. Trustee Succession Planning: Consider who will succeed the current trustee(s) in managing the trust, particularly if the trustee is an individual rather than a corporate entity.
Tax Planning: Allows income to be distributed among beneficiaries, potentially reducing the overall tax liability.
Succession Planning: Facilitates the transfer of wealth across generations while maintaining control over the assets.
Flexibility: Provides flexibility in managing and distributing income and capital to beneficiaries. Step 2: Choose the Type of Trust There are several types of family trusts in Australia, but the most common is a discretionary trust. In this trust: The trustee has the discretion to decide which beneficiaries receive income or capital from the trust and in what proportions.
This type offers flexibility in distributions, making it ideal for tax planning and asset protection.
Other types of family trusts may include unit trusts or fixed trusts, where the distribution to beneficiaries is fixed or determined by their unit holdings. Step 3: Appoint Key Roles within the Trust A family trust requires several key roles: Settlor: The person who establishes the trust by contributing a nominal amount (e.g., $10). The settlor must not be a beneficiary or trustee of the trust.
Trustee: The person(s) or entity responsible for managing the trust assets and making decisions about distributions. Trustees can be individuals or a corporate entity. A corporate trustee provides continuity and limited liability.
Appointor: An individual or entity with the power to appoint or remove trustees. This role ensures control over who manages the trust.
Beneficiaries: The individuals or entities for whom the trust is created. Beneficiaries are usually family members but can also include companies or charities. Step 4: Draft the Trust Deed The trust deed is the legal document that establishes the trust and sets out its terms. It should be drafted carefully to reflect the specific objectives and requirements of the trust. Key elements of the trust deed include: Name of the Trust: The official name by which the trust will be known.
Details of the Settlor, Trustee(s), and Beneficiaries: Clearly identifying all parties involved in the trust.
Trust Property: A description of the initial trust property (usually a nominal amount settled by the settlor).
Powers and Duties of the Trustee(s): Outlining the responsibilities, powers, and limitations of the trustee(s) in managing the trust assets and distributing income or capital.
Distribution Provisions: Specifying how income and capital may be distributed to beneficiaries, considering their circumstances, needs, and tax implications.
Trust Duration: In Australia, a trust can last up to 80 years, after which it must be wound up unless it is terminated earlier.
Conflict Resolution and Amendments: Provisions for handling disputes, amendments, and other administrative matters.
It is advisable to engage a solicitor to draft the trust deed to ensure it complies with relevant laws and meets the specific needs of the family. Step 5: Execute the Trust Deed Sign the Trust Deed: All parties involved (settlor and trustee(s)) must sign the trust deed in the presence of a qualified witness, usually a solicitor.
Settlement Sum: The settlor pays the nominal settlement sum (e.g., $10) to the trustee, officially establishing the trust. Step 6: Register for an Australian Business Number (ABN) and Tax File Number (TFN) A family trust must obtain an ABN and TFN from the Australian Taxation Office (ATO). This is necessary for tax purposes, including filing annual tax returns and distributing income to beneficiaries.
ABN: Required if the trust will carry on a business.
TFN: Necessary for lodging tax returns and other dealings with the ATO. Step 7: Open a Trust Bank Account Open a separate bank account in the name of the trust to manage its finances. The trustee(s) will use this account to deposit income, pay expenses, and distribute funds to beneficiaries. Keeping trust finances separate from personal finances is crucial for legal and tax purposes. Step 8: Transfer Assets to the Trust Transfer the chosen assets (e.g., cash, shares, real estate) to the trust. This may involve:
Stamp Duty: Depending on the type of asset and the state or territory, there may be stamp duty implications. For example, transferring real estate may attract stamp duty.
Capital Gains Tax (CGT): The transfer of assets may trigger CGT. However, there are exemptions and concessions, such as those related to the main residence or small business CGT concessions. Step 9: Manage the Trust and Comply with Legal Obligations Maintain Accurate Records: The trustee must keep accurate records of all trust transactions, distributions, and decisions made in accordance with the trust deed.
Annual Tax Returns: The trustee is responsible for lodging annual tax returns and providing beneficiaries with their share of the trust’s income.
Compliance with Legal and Fiduciary Duties: Trustees must act in the best interests of the beneficiaries, manage the trust prudently, and comply with the terms of the trust deed and relevant laws. Step 10: Regular Review and Amendments Review the trust deed periodically, particularly after significant life events (such as births, deaths, marriages, divorces) or changes in law, to ensure it continues to meet the family's needs. Amendments may require legal advice and must comply with the provisions set out in the trust deed. Additional Considerations: Professional Advice: Seek advice from solicitors, accountants, and financial advisors throughout the process to ensure the trust is structured correctly and complies with all legal and tax requirements. Trustee Succession Planning: Consider who will succeed the current trustee(s) in managing the trust, particularly if the trustee is an individual rather than a corporate entity.
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