One of the most effective vehicles to use for asset protection is a trust. Trusts come in many shapes and sizes. And there is no ‘one size fits all’. The type of trust depends on many factors. The most common type of trust is a family trust.
Sydney, NSW -- (SBWIRE) -- 07/28/2010 -- A Trust is an agreement whereby a person or company (known as the trustee) holds money, property or runs a business for the benefit of others (the beneficiaries).
The trustee is the legal owner that is responsible for the day to day running of the trust and the beneficiaries hold the beneficial interest, i.e. beneficiaries benefit from the income generated by the trust.
So any asset held in a trust is legally controlled and owned by the trustee. However you control exactly how it’s managed and which beneficiary gets what income or capital.
What is a FamilyTrust?
A Family Trust (also called a Discretionary Trust) is one of the most common trusts used by investors and small to medium business owners in Australia. They are generally set up to hold a family’s assets or to conduct a family business for the benefit of family members (beneficiaries). The main reasons for setting a family trust is for tax planning, asset protection and estate planning.
Tax Planning
The trustee of the family trust has the discretion to determine which beneficiaries to distribute business income, investment income or capital gains too each year. This provides some good tax planning opportunities as income can be distributed to low income earning beneficiaries to utilise the lower tax rates.
Asset Protection
Any assets held in a family trust cannot be attacked by someone who wants to sue a beneficiary personally or in the event of bankruptcy as the assets are legally owned by the trustee not the beneficiary.
Any assets held in a trust can only be attacked by creditors of that trust. The trustee of a discretionary trust is liable for the debts of the trust e.g. to its creditors. If for whatever reason the assets of the trust are insufficient to meet the debts, the trustee remains liable. This is why it is recommended that a special purpose company with no assets be used as a trustee company for the trust. The trustee has no right to call on a beneficiary of a family discretionary trust to meet any shortfalls in the trust.
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