Hi,
Are there any Aussies able to share their experiences in setting up and running a discretionary (family) trust?
The main reasons we are looking at creating a trust are: Income streaming, Asset Protection and Tax Planning
We are a married couple who currently have approximately ~$50K in index funds that are in a single name (lowest earner). Our plan is to rapidly grow the amount in index funds that will form the majority of our FI stash. This means we need to get the correct structures in place.
AppointerBoth of us so we are able to change the Trustee if necessary
TrusteeFrom my reading it looks like it would be best to set the trust up with a corporate trustee. My reasoning behind this is that the trustee controls the assets and benefits derived from the trust but cannot be a beneficiary of the trust. Obviously we both with to benefit from the trust (be beneficiaries) and have control over how the trust is run. By having a corporate trustee we are able to control the trust by being directors (but not shareholders?) of the corporate trustee company. Asset protection, by having a corporate trustee company that only has $5 in assets means it won't be a target to be sued. By having the assets in a trust if we go bankrupt or are sued individually the assets are also safe.
BeneficiariesThe two of us would be named beneficiaries of the trust but I believe the trust deed can be written a way that we are also able to include other family relatives as a beneficiary as/if needed.
I don't know if we should be creating a "bucket" company and having it as a beneficiary as well? Can you create a provision for one when creating a trust but not implement it until later? Is there a risk in doing this?
Charities and how they are included? There are benefits regarding taxation of donations to charities made through a trust.
Bucket CompanyThis appears to add a lot of extra complexity but many of the benefits. Currently we are in the 32.5 and 37c tax brackets. One thought is that we can stream some of the trust income to a bucket company at the lower 30% tax rate and let this compound inside the company. You do loose the 50% CGT discount when selling an asset owned by the bucket company. For something like bonds or other income streams with smaller capital gains losing the discount may be less important. Another alternative is to loan the money back to the trust using a Division 7A loan. The bucket company could also pay dividends, have employees along with their deductions, extra pre-tax super contributions, etc. All of these options add additional complexity, tax implications and reporting requirements! Where is the sweet spot?
So if you have any feedback regarding creating, running, structures and costs of trusts along your experiences and tips I would love to hear from you! Thanks :)
BibliographyAussie Firebug:
http://www.aussiefirebug.com/pay-less-tax-part-1-buying-assets-in-a-trust/http://www.moores.com.au/images/uploads/files/Family_Trusts.pdfhttp://www.wealthsafe.com.au/wp-content/uploads/2015/08/The-Intelligent-Trust-Guide-20141.pdfVarious online sellers of discretionary trust documents
ATO website
BigchrisB's forum posts and the Australian Investing Thread on this forum!
PS I'd love to borrow a copy of the Trust Magic by Dale Gatherum-Goss if anyone has one, none of the libraries I have access to have a copy.