How a Family Trust can help pass on your wealth.

This article was written by our founder Justin Mastores, who also manages our parent company, Rees Group. Rees Group has a reputation for providing valuable financial advice to some of Australia’s most successful businesses and families. We’ve made the decision to share the advice that’s most relevant to our valued customers here at Ezytaxback. 

Are your finances starting to really pick up speed? If you’ve started to accumulate significant assets, it could be time to consider a family trust as part of your strategy. 

This is especially true for self-employed sole traders and small business owners. If you’re continuing to hold property or large amounts of capital in a trading business or a company structure, then you’re exposing yourself to extra taxes & unnecessary risk. 

Setting up a family trust is a much more secure & tax-effective way to protect your assets so that you can pass them on to the next generation. 

What is a family trust – and how does it work?

Essentially, a family trust is a legal entity that holds property or assets for the benefit of (“in trust for”) the beneficiaries – that’s you & your family. 

The entity holding the property and assets in the trust is called the trustee. This entity can be an individual or a company, but we always recommend a corporate trustee. I’ll explain why later. 

The property and assets are the trust fund from which income is derived. Everything is set out & governed by the trust deed, which establishes how the trustee deals with the assets of the trust fund and the income it generates.

A family trust is also referred to as a discretionary trust because the trustee can distribute the income at their discretion. They can choose & change the amount each beneficiary receives. 

This differs significantly from a unit trust, where the income from the trust is distributed in fixed amounts. It also makes a family trust an ideal vehicle for transferring wealth flexibly between family members.

When should I consider a family trust?

It’s a good idea if the amount of capital you’re holding far exceeds the amount of working capital you need to run your affairs, or if you own significant assets like property. (Although we wouldn’t recommend holding your main place of residence in a trust.) It’s also a good place to hold shares in your business, if you have one.

For instance, we recently sat down with one of our clients. She’s been with us for a few years, and her business has been growing fast. She first approached us as a sole trader, and we’ve since helped her incorporate her business as a company.

Now, she’s planning to buy a property as their new business premises. So we’re helping her set up a trust to hold it in.

Why do we recommend this? There are a few good reasons.

1. It provides extra security

When you’re holding assets within your company structure, they’re exposed to risk. If your business gets sued, or you go into debt, you could lose them. This is doubly true for individuals or sole traders, who hold their assets personally.

A family trust shields you from these issues. Because your assets belong to the trust, not you or your business, the assets are protected in case something goes wrong. It’s always a good idea to divide your assets into different buckets, and a trust is arguably one of the most solid buckets out there.

For extra protection, we always recommend using a company as your trustee. This is because assets held by individual trustees are also vulnerable to litigation against that individual. There’s also a chance they could die or become incapacitated, complicating your affairs. It’s safer to always go with a corporate trustee.

2. It’s flexible – and potentially more tax-effective

This is one of the biggest benefits of using a family trust. All income earned on the trust must be distributed to the beneficiaries, who are then taxed at their individual income tax rate. 

This means that if you distribute income to a beneficiary in a lower tax bracket – like your young adult children, for instance – it could potentially help you save on the flat tax rate. You can also redistribute capital gains when assets are sold, or allocate different percentages of different income types to certain beneficiaries.

It’s also important that any transactions you make can be justified as having a commercial or practical purpose, not motivated purely by taxation. The ATO has a number of anti-avoidance laws designed to catch this out.

3. Trusts are designed for passing on your wealth.

If you’re trying to build wealth, there’s a good chance you’ve been building it to support your family. You want to have something that you can pass on to the next generation to improve their lives.

It’s a story we hear often from our clients, and it’s a driving force behind what we do at Rees Group and Ezytaxback. When you build a business the right way, you can help your family enjoy success for generations to come.

Because of their flexibility, trusts can make the succession process even easier. It’s why most farms across Australia are held in family trusts. With a legal lifespan of 80 years, trusts are designed with intergenerational wealth transfer in mind.

Thinking of establishing a family trust?

Does this sound like something that could work for your family? 

Rees Group can help you establish a family trust. Our advisors will guide you through every stage of the process in a manner that feels simple, effective & easy to understand.

We’ll walk you through the set-up steps – like appointing a trustee & establishing a settlement – as well as providing advice on more advanced matters, like succession plans, taxation advice & potentially business re-structuring considerations. We’ll make sure your family is in the best position to succeed.

By engaging with clear, strategic short and long-term planning at an early stage, you can help secure your family’s financial future. Get in touch with Rees Group today if you’d like to talk more about what a family trust could do for you.

Disclaimer: This advice is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether this advice is suitable for you and your personal circumstances. We strongly recommend seeking out professional advice before acting.



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