Trusts continue to be a very popular choice for Australian families in their pursuit for asset protection and tax minimisation. A trust can be a viable protection strategy for your families assets and can offer greater flexibility for year end tax outcomes. The example below of how a family trust can be used illustrates their tax-minimising power while the ability to stream and split income remains.

Example:

John and Jane are both 40, and have two children aged 9 and 11. They set up a family trust with all four family members as beneficiaries.

By the time they turn 50, John and Jane are at the peak of their earning career and are both on the highest marginal tax rate. Their trust has $500,000 invested and is yielding $25,000 a year. Their children are both at university and earning very little; they don’t pay any income tax.

By appointing, or streaming, the income from the trust to their children, no tax is payable on this income, and franking credits are refundable in full. (If the children were under 18, the top marginal tax rate would apply to any income above $416 per year.)

By 65, John and Jane have retired and live off their non-taxable super. Their family trust has $1 million invested and is yielding $50,000 a year. Their eldest child is earning a high income and paying the highest marginal rate of tax. The other is taking time out of the workforce to raise a family.

By splitting the trust income equally between John, Jane and the non-earning child, no tax is payable on trust income and franking credits are refundable.

The verdict

A trust can be a viable protection strategy for your families assets. We set up several trusts a week for savvy Australian families. If you would like to know how a trust will benefit yourself and your family, talk to your GMD Accounting team member today.