Don’t overlook family trusts in favour of SMSFs
There is a tendency currently for family trusts to be overlooked in favour of SMSFs as a way of managing wealth – but this could be a costly mistake.
Family trusts have a number of advantages over SMSFs that shouldn’t be ignored and can be used in conjunction with SMSFs to great effect.
Family trusts have far fewer restrictions and rules than SMSFs and are therefore simpler to operate.
Other benefits of family trusts include:
• asset protection options
• intergenerational wealth transfer
• no limit to contributions to the trust and the ability to increase capital
• income splitting to all family members, giving substantial tax benefits particularly where there are low, or no, income earners in the family
• no age limits to access funds
• ability to hold personal use assets, such as a holiday home
• ability to run a business through the trust
• estate planning benefits
The reasons people tend to ignore family trusts as a wealth management tool is because they believe their benefits have been largely eroded and they are seen as overly complex and expensive. In reality, they are often simpler and cheaper to operate than an SMSF.
The big attractions of SMSFs are in the tax benefits that superannuation offers as well as the flexibility they give in managing retirement savings, but the benefits of family trusts are also very significant.
Through a family trust, ownership of assets such as a share portfolio or holiday house can continue on uninterrupted even if a family member dies. This is because the family member doesn’t own the asset, the trust does. Consequently, the assets don’t form part of the individual’s estate.
Basically this makes family trusts an ideal tool for multi-generational wealth transfer while SMSFs, on the other hand, must be wound up on the death of the last member, which can also raise tax issues.
It also means assets held by an SMSF must be sold, and if the family wishes to keep an asset, such as property, they will be liable for stamp duty and conveyancing costs.
Those wanting to invest a substantial amount, say more than $300,000, who have either maxed out their contributions to super, or want more accessibility than super provides, may find a family trust worthwhile.
Michael Hutton, partner, HLB Mann Judd Sydney.
