Why Put The Family Home into A Trust

28 March 2023

If you are in an industry where you;


  • Employ staff;
  • Have creditors;
  • Are at risk of being sued.


It is highly recommended that you have a trust. A trust can provide the following;


Creditor and Asset Protection

You should consider having a trust if you are in an industry where you could become bankrupt and have creditors. Assets that are beneficially owned by somebody else, then notwithstanding they may legally be in your name as trustee they are (subject to some exceptions) safe from your creditors. It is common for a trust deed to exclude any beneficiaries that are bankrupt. Hence, this can prevent successful claims against any property that is owned by the person or who may receive a benefit under the trust.


Tax Savings

The trust tax rate is currently 33% and is due to increase to 39% on 1 April 2024. A common business structure is to trade under a company and the trust would own the majority of the company’s shareholding. The director would be paid a director’s salary and any excess profits would be paid out to the trust and taxed at the current trust’s income tax rate. However, trust’s income can be distributed to beneficiaries who may have lower tax rates and they may claim beneficiary expenses, which can be offset against their beneficiary income. Furthermore, any minor beneficiary under the age of 16 can have a $1,000 of trust income allocated to them tax-free each year.



Flexibility

A trust can last up to 125 years and it is difficult to forecast the needs of beneficiaries over such a long period. A discretionary family trust provides flexibility to cater for different beneficiaries needs at different times in their lives.


Protect Your Children from future Relationship Property Claims

By putting your assets into trust, you are a long way towards protecting any children you may have against the danger that:


  • Half of any inheritance they may have otherwise have received from you, being claimed by an ex-partner from any failed relationship they may be unfortunate enough to suffer in the future.
  • One of you dies, the other gets into a new relationship that:
  • Fails and leaves half of his or her wealth (i.e. your children’s inheritance) to the ex-relationship partner.
  • Produces more children with the result that again your children’s inheritance is reduced by virtue of now being spread over more children than just those produced by the two of you.
  • If your assets have been effectively transferred into a trust they no longer belong to you and cannot as such be claimed by a new life partner as relationship property and subject to splitting. This is a useful way of helping ensure that your assets are protected from claims by any future partners. However, a trust is not as robust as they once were and can be subject to claims against their validity. To mitigate such claims a contracting out agreement should be entered into and the trust should have regular meetings, lease documentation and accurate records. 


A family happy after setting up their Trust

What is a Family Trust?

A family trust is a mechanism for holding assets where property is put into the name of certain people “trustees” (usually you) who hold the property for the benefit of someone else (the beneficiaries, which would usually include you). It is important to understand that although creating a separate asset holding mechanism, the trust itself will not, unlike a company, have any legal existence separate from the trustees. The trustees are, essentially, the trust. The trustees can only use and deal with the trust assets for the benefit of the beneficiaries and cannot treat the assets as their own.


How does the process work?

  1. We will have a no obligations chat with you.
  2. If you decide to proceed, we draft a letter to you and your accountant with our proposal.
  3. We can put you in touch with a mortgage adviser so you can begin putting an application to the bank (if required).
  4. Once we have the approval from you, your accountant and your lender, we can then implement the proposal.


Digital and remote signing

In some circumstances, we can provide our services remotely and have some of the documents signed digitally.


Restructure usually pays for itself.

Clients tend to find these exercises will usually pay for themselves in the long term due to reducing the chance of successful creditor claims and being able to allocate trust income to beneficiaries on lower tax brackets.


The fee for the trust formation can usually be covered (partly in or in full) by the cash contribution offered by the bank when you refinance to them. A cash contribution is where the bank pay you monies as a token of appreciation for using their services. The cash contribution amount is usually 1% of the borrowing. A condition of the cash contribution is that you stay with the bank for a period, which is usually three years or so.

A more mature couple signing a Trust deed

From here:


Please feel free to call the office for a no obligation chat to discuss your situation and requirements.


Alternatively, you can email us or complete the form below, in which we endeavour to get in touch with you within 24 business hours.

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