The issue
Is a trust worthwhile for holding and managing your assets? Or will it be a waste of money and add unnecessary complexity?
The answer: It depends.
What it depends on are your finances, income, job risk, family situation and future plans. Set out below are some of the advantages of a trust, which might assist to answer the question of whether a trust is a good idea for you.
The basics
Most people are familiar with the basic idea of a trust. Essentially, a 'trustee' holds assets (this can be real estate, shares, cash, a business pretty much anything) in the trustee's name for the benefit of someone else. Even though the trustee is registered as the owner, they are not the 'real' owners. Eventually the assets of the trust must be distributed to the real owners, along with any income that is earnt from investment of the trust assets.
Advantages of a trust
There are many advantages of a trust but, in summary, the key benefits are:
- Tax planning if you hold assets in your own name then income earnt from these assets will be treated as your income and will be taxed at your marginal tax rate. When using a type of trust known as a 'discretionary trust' you can potentially share the income among multiple people, often family members who may have lower tax rates, but also to charities and the like.
- Asset protection trusts allow you to minimise the risk that your assets might all disappear because of one bad business or personal decision. A properly structured trust can protect assets against bankruptcy and family law claims or, conversely, if it is the trust that is facing the risk (e.g. a struggling business), then this can limit the loss caused to you personally by you not losing your own personal assets.
- Succession planning when a person dies, assets in their name are generally frozen and can take some time to administer. A trust does not die with any one individual. Provided the trustee is carefully selected, a trust can continue to operate uninterrupted even when a key person dies.
Once established, trusts often do not have any significant costs to operate. You might have some accounting costs for an annual tax return or for advice on tax effective distributions from time to time.
It should be noted that the best time to start a trust is at the commencement of any new enterprise or investment. Once you already have a successful business or large investment portfolio, significant tax or other costs may be triggered by moving assets into a trust structure.
Setting up a trust itself is not difficult. It's the acquiring of the money and or assets to put into a trust that is the hard work!
How can we help?
We assist customers regularly with business planning and trusts, both simple and complex. Please feel free to contact our Wills and Estates team on 1300 205 506 if you have any queries or would like more detailed advice in this area.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
Liability limited by a scheme approved under Professional Standards Legislation.
Mitchell is the Managing Principal of our law practice.
He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.
