Setting up a Family Trust: Perth, Australia

A family trust is a type of discretionary trust that is set up to hold family assets or to run a family business. A family trust is a popular structure for various reasons including asset protection and tax planning.

So what exactly is involved in setting up a family trust?

legacy

Step One: Nominate a trustee for the trust

A trust is essentially a relationship whereby a person or entity (trustee) holds property or other assets on trust for another person (beneficiaries). Therefore for a trust to exist, it must first have a trustee which will hold legal title to the trust property on behalf of the beneficiaries.

A trustee can be either an individual or a company. Whilst additional costs are associated with setting up a company to act as trustee, a corporate trustee can offer the following benefits which individual trustees cannot provide:

  1. asset protection – this safeguards you from potentially losing your personal assets in the event legal action is sought against the trust; and
  2. administration efficiency and succession of the trust – assets do not have to be transferred to a new trustee if a director dies or resigns.

Step Two: Create a Trust Deed

A trust deed is a legal document which outlines the terms of the trust. It deals with all matters of the trust such as nominating beneficiaries, determining and distributing trust income and capital, steps for passing a resolution, trustee powers, steps to winding up the trust, etc.

It is very important that the terms of the trust deed adequately address the current and future intentions of the trust as trustees must always act in accordance with these terms. Careful consideration should also be made before making any amendments to the trust deed as this may cause adverse tax consequences. For these reasons, proper legal advice should be sought by a suitably qualified lawyer prior to creating such a document.

Step Three: Sign and Settle the Trust

The settlor is an unrelated person who settles the trust by giving an initial sum of money or item of property to the trustee to hold on trust for the beneficiaries. The settlor and trustee must then sign and date the trust deed and have this witnessed by a third party.

Note: Transfer (stamp) duty may also be payable on the trust deed depending on the relevant state in Australia.

Step Four: Apply for a Tax File Number and Australian Business Number (if applicable)

Once the trust is set up, a tax file number will need to be obtained through the Australian Taxation Office (ATO). A trust may also require an Australian Business Number depending on the nature of the trust’s activities. These applications can be made online.

Step Five: Open a Bank Account

The final step is to open a bank account for the trust. The account is opened in the name of the trust as trustee for the trust. The bank will often require an original or certified copy of the trust deed. Once the account is set up, the settlement sum should then be transferred into the trust’s bank account which represents the trust’s property.

Other Matters to Consider

In addition to establishing a family trust, there are also some key ongoing considerations for the trust, which include:

  1. keeping adequate minutes and resolutions of any changes or decisions made each year
  2. ensuring that any decisions for the trust are in accordance with the trust deed
  3. determining trust income each year and amounts to distribute
  4. whether the trust should make a family trust election with the ATO

Establishing and operating a family trust requires some careful planning and consideration. Setting up a family trust incorrectly can have significant legal and tax consequences. It is very important that adequate legal and taxation advice is sought prior to setting up a family trust.

At Forty Seven, we are able to provide a complete, integrated financial planning, accounting and legal solution for the set up and ongoing management of a family trust. We have all the specialised services in-house to deal with key issues such as taxation of trusts, asset protection, drafting and amending trust deeds, investment and business planning. Having all these services under one roof ensures that all legal, tax and investment aspects are addressed from all the different angles so that your trust can operate the way you intend.