Family Trusts have been used for years and is an effective structure to create if you are after one or more of the following:
1. You are earning too much income and want to obtain a tax advantage
2. You or one of your family members wants to protect their assets when they are becoming bankrupt.
3. You want greater certainty as to what will happen to your estate upon your death, as you will not have to worry about challenges to your will.
Before considering a trust, investors should ensure they understand the benefits and possible risks of this structure.
An Australian family trust is created by a trust deed, similar to that of a constitution of a company. The people obtaining the benefit must be within what the Australian government consider to be a family group.
They do not have to make trust distributions in any particular proportion or in the same proportions as they did in previous years.
The Family Trust does not pay tax on the distributions given to family members but does have to pay tax on any money that doesn’t get distributed and remains in the Trust. The Family Trust is free to distribute money in proportions that take the best advantage of family’s personal marginal tax rates.
The family members who receive this payments then pay the tax on distributions made to them.