Save
Why are family trusts ‘more important than ever’?
As government-mandated limits on superannuation fund contributions take effect, the role of family trusts in retirement planning could be “more important than ever”.
Why are family trusts ‘more important than ever’?
As government-mandated limits on superannuation fund contributions take effect, the role of family trusts in retirement planning could be “more important than ever”.
That’s according to SUPERCentral superannuation and estate planning expert, Brian Hor. Mr Hor explained this week that family trusts have always been important in terms of business, estate and tax planning.
However, following the introduction of measures that limit the ability to make concessional contributions to $25,000 a year and non-concessional contributions to $100,000 a year to superannuation funds, the role of family trusts has increased, Mr Hor said.
“Plus, tax free pension amounts are now capped, transition to retirement income streams are no longer tax free, and there are constraints on the ability to use limited recourse borrowing arrangements to circumvent the caps and/or contribution limits,” he continued.
On the other hand, family trusts aren’t as limited by legislation on issues like the requirement for a sole purpose test, limits on trust membership and who can be beneficiaries, as well as to whom the actual distributions can be made.
Further, family trusts are also free from the “stringent legislative restrictions” around conditions of release, what can be invested in, trust borrowings and transactions with related parties.
Commenting on this, Mr Hor added, “Now, this does not mean that SMSFs are dead – they’re still the most tax effective vehicle for members in pension phase, they still attract very low tax on earnings in accumulation phase, they can still access a CGT discount of one-third if the relevant asset was owned for at least 12 months and they are still great as tax effective vehicles for holding business real property.
“However, what it does mean is that, post 1 July 2017, the ideal retirement strategy is now a dual structure: an SMSF for tax free income up to your transfer balance cap, and a family trust for excess monies where you are unable to contribute more to super, or if you can do better than the 15 per cent tax flat rate on your super accumulation account.”
This means a hypothetical non-working spouse and two children at university with the low income tax offset are able to receive about $60,000 per year tax free on $1.2 million invested at 5 per cent in a family trust.
That’s a yearly saving of $9,000 compared with paying 15 per cent on those earnings within super, Mr Hor said.
“A family trust is also useful if you need greater flexibility in terms of access to your funds and the ability to gift or lend funds as compared to super,” Mr Hor said.
“However, family trusts still do need to be regularly updated for changes in the laws and in the family’s circumstances.”
With this in mind, he said a family trust deed should be reviewed in case the deed is too inflexible, “especially as regards the power of appointment of the trustee, or power to amend the trust deed”, he explained.
It should also be reviewed to ensure that it hasn’t been incorrectly drafted.
Continuing, Mr Hor said a third reason could be that “the trust may be close to vesting (or may even have already vested), or the trust deed may simply not say what you think it does – especially regarding who are the beneficiaries, or the exclusion of so called ‘notional settlors’”.
Tax saving
How are Australians planning on spending their tax savings?
Essential bills, savings accounts, Christmas gifts and exchange-traded funds appear to be the big winners from the latest round of tax cuts, new research has revealed. ...Read more
Tax saving
First in the world: SA imposes EV tax
The South Australian government is the first government in the world to introduce an electronic vehicles tax following an announcement by the treasury. ...Read more
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
Tax saving
ATO warns businesses of JobKeeper scam
The ATO is warning the community about a JobKeeper scam which is asking members to enter personal information. ...Read more
Tax saving
Why fast-tracking tax cuts won’t stimulate the economy
Treasurer Josh Frydenberg has flagged that previously legislated tax cuts could be moved forward in a bid to help stimulate the Australian economy. ...Read more
Tax saving
Last-minute items to check off before 30 June
With the end of the financial year almost here, an accounting firm has outlined key changes with tax returns this year and flagged some last-minute tax strategies to consider before 30 June. ...Read more
Tax saving
Australia’s richest owe the Tax Office $772m
Australia’s elites and private companies fell $772 million in taxes due to miscalculations and deliberate tax avoidance, the Australian Taxation Office has revealed. ...Read more
Tax saving
Do you have to pay taxes on a trust?
Trusts are usually set up for business, estate planning and investment purposes to separate the legal and beneficial ownership of assets held within the structure. ...Read more
Is the market overheating; should ETFs take your fancy, and what’s happening to the low and middle income tax offset?
Listen now
Home values up 30% (or are they); NFTs taking the world by storm, and why Keating thinks Aussies will be ‘poor’ in retirement
Listen now
Raging floods, the tech stock bubble and the ongoing SG debate
Listen now
Meet the Manager with Trilogy’s Philip Ryan: RBA rates and property price growth
Listen now
Tax saving
How are Australians planning on spending their tax savings?
Essential bills, savings accounts, Christmas gifts and exchange-traded funds appear to be the big winners from the latest round of tax cuts, new research has revealed. ...Read more
Tax saving
First in the world: SA imposes EV tax
The South Australian government is the first government in the world to introduce an electronic vehicles tax following an announcement by the treasury. ...Read more
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
Tax saving
ATO warns businesses of JobKeeper scam
The ATO is warning the community about a JobKeeper scam which is asking members to enter personal information. ...Read more
Tax saving
Why fast-tracking tax cuts won’t stimulate the economy
Treasurer Josh Frydenberg has flagged that previously legislated tax cuts could be moved forward in a bid to help stimulate the Australian economy. ...Read more
Tax saving
Last-minute items to check off before 30 June
With the end of the financial year almost here, an accounting firm has outlined key changes with tax returns this year and flagged some last-minute tax strategies to consider before 30 June. ...Read more
Tax saving
Australia’s richest owe the Tax Office $772m
Australia’s elites and private companies fell $772 million in taxes due to miscalculations and deliberate tax avoidance, the Australian Taxation Office has revealed. ...Read more
Tax saving
Do you have to pay taxes on a trust?
Trusts are usually set up for business, estate planning and investment purposes to separate the legal and beneficial ownership of assets held within the structure. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
