For your average person, life has become about going to work, earning as much as you can, paying your taxes and saving as much as possible so you can buy a house and raise a family. But what if there was an easier way to save money, pay less tax and fast track you to your end goal? What if there was a legal entity you could set up that would allow you to disburse the largest income earner’s salary amongst family members to reduce your tax and increase your savings? Well, if you own your own business, there is; it’s called a Family Trust.
A trust is essentially a legal entity that is governed by a person appointed as “the one in charge” and referred to as the Trustee. This person is the administrator and the one who makes the decisions. In a family trust, this might be Mum and/or Dad. A trust will then have beneficiaries, allowed for by the rules of the trust and selected by the Trustee. These would normally be the spouse, children (current or future), grandchildren or anyone else the trustee wishes to name. A Family Trust can have many purposes, one of which might be to minimise the tax a family/person is paying, which could if structured correctly, save you tens of thousands of dollars. If for example, Mum or Dad earned an income that put them in a very high tax bracket, the Trustee could then “pay” the beneficiaries who are in much lower tax brackets, a distribution from the trusts aka a salary, from their own wage, thereby reducing their taxable income. This essentially minimises the amount of tax paid by the family as a whole and increases the available income. HLB Mann Judd tax partner Peter Bembrik says family trusts commonly exist where there is a high income-earning professional, a low income-earning spouse, and children studying full-time.
Trusts have long been used in family tax planning and are an excellent tool to use to not only minimise your tax, but also protect family assets and grow the family’s wealth. In addition to tax benefits, trusts can also be used to hold investments. A significant advantage of holding investments in a family trust – as opposed to a company – is that where the trust makes a gain, 50 per cent of the amount is tax-free provided that the asset is held for more than 12 months, if paid to an individual.
In NSW, trusts last up to 80yrs, however this can be reduced if desired when the trust is set up. The end date of a trust is known as a ‘vesting date’ and is the day which the trust closes and the nominated beneficiaries become entitled to its assets and income.
If you think a trust is something that could benefit your family, contact Tyler & Co today on 02 9966 1799 to run you through what is involved and how one is set up.