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Family Trust and Family Trust Election in Australia
December 20, 2021
Olivia Smith
Family trust

In Australia, trust funds are very popular and are available to everyone. Many people thought that these funds would only be for super-rich folks. But, it is a myth. Even, moderate-income individuals with business and personal assets can use the benefits of these funds. Here, we talk about family trust in Australia and family trust elections to clear your doubts and guide you to set up your trust fund perfectly.

What is a Trust Fund?

Trust is a term that includes a variety of structures, each one has a specific procedure, regulations, and tax consideration. In a simpler term, a trust is a private, legal process where the ownership of one’s assets is managed by an individual or a group of individuals for the benefit of another person.

Trust helps people to separate personal assets from the personal estate. Once a settlor gives the responsibility of the assets to a trust, that persons no longer own them. It is very helpful for shielding the assets from the creditors at the time of bankruptcy proceedings or plaintiffs in lawsuits. Let’s talk about family trust in Australia.

Family trust in Australia:

Family trusts are ideal for families with a private business or other income-generating operations. It is one of the most common small business structures in Australia. Here, trustees have the discretion to decide who receives distributions and how often they make the payout. Every Australian state accepts family trust, and it is relatively easy to set up the funds. But, you can also consult with professionals who are handling this thing. They offer you a hassle-free way of operating family trusts.

It is basically an agreement where a person or a company agrees to hold the assets legally for the benefit of others, generally their own family members. Here, the trustee holds a discretionary power to decide the payout and who the beneficiary or beneficiaries will be. So, it is completely different from Unit Trusts Funds in Australia where the distribution of the trust income and capital gains are fixed.

  • A family member establishes the family trust for the benefit of the members of the family group.
  • It is also associated with family trust election to get certain tax advantages. The trust undertakes the family control test to pass the benefits of the trust income to the beneficiaries of the family group.
  • It protects the family assets in a family member’s bankruptcy.
  • It is a process of passing the family assets to the future generation.

Trust deed:

it is a written agreement form that discusses the terms and conditions that a family trust maintains. A trust settlor establishes the trust, and a trustee or trustees sign the agreement or trust deed. A settlor gives the trust property to the trustee.

Trustees, settlors, and beneficiaries:

Settlors originally provide the assets to trustees. Trustees are managing the trusts and distribute the assets. Beneficiaries are those who ultimately receive assets within the trust.

What is family trust income?

The benefits of a family trust in Australia are many, but the most important once that a trustee can distribute income or capital gains of the trust among beneficiaries. Trustees do not follow or maintain any particular distribution proportions here.

A trust does not pay income tax on the income distributed to the beneficiaries, but it pays income text on the undistributed income. The trustee is free to decide the payout and the number of beneficiaries who will get the income, considering their marginal tax rates. The beneficiaries also pay tax on the distributions they get, maintaining the terms of the tax-free threshold.

The distribution a beneficiary receives from a trust is not a form of income, but it is a part of the beneficiary’s assessable income. In simple terms, if the beneficiary receives income from other sources along with the distributions, the beneficiary will pay tax on his/her complete income.

A trustee will pay tax on the undistributed income. So, a family trust generally distributes the trust income completely among beneficiaries before the end of each financial year. The trustee will choose the beneficiaries as there is a penalty tax rate on the distribution made to minors.

Family Trust Election:

Distribution under the family trust is a crucial thing to consider. It follows two ways. First, those beneficiaries who qualify under the trust deed will get the distribution. Second, a trust makes a family trust election, and the beneficiaries under the family trust group will receive the distributions.

Australian Taxation Office (ATO )looks after the family trust election matter. The ATO stated that any distribution made outside the family group will come under the tax payable at the top marginal rate.

In simpler words, if the trust under the family trust election pays someone outside the family group, the amount will come under tax with the maximum rate possible.

Seek legal advice from Compex:

Setting up a family trust includes so many legal issues and tax-related matters, which you may not perform single-handedly. Compex comes here for you. We have a professional team who will take care of the documents for establishing family trust in Australia. We have legal experts who will help you get the best benefits from the trust. Please contact us to know more about our services.