How to set up a family trust

If you've been wondering how to set up up a family unit trust correctly, you are not alone. Thousands of new family unit trusts are fix in Australia each yr for a diversity of reasons including asset protection, tax optimisation or to human action as the legal construction for a business organization.

How to set upwards a family unit trust in Australia

The post-obit steps outline how to set a family trust.  The exact structure of a family trust is best determined past seeking advice from both an accountant and lawyer who tin can explain everything and assist determine what will work all-time for you and your family.

1. Cull the trustee

The almost of import decision when setting up a family trust is to ensure yous select the correct trustee.  A trustee could be one person, a group of people or a company prepare specifically to act as trustee.

A trustee of a family trust does not accept to be a professional, it can be a family fellow member or another trusted individual such as a shut relative. The person (or persons) selected equally trustee(s) demand to be someone of integrity who can sympathize their trustee obligations such as acting in practiced organized religion. They demand to be able to carry out their duty to act in the best involvement of beneficiaries (not themselves).

Where a visitor is used, the company should exist a newly fix company that Simply acts as trustee of the trust. An existing visitor that is trustee of an SMSF or a company that operates a concern should not be used. The manager or directors of the trustee visitor should be selected with same criteria as in a higher place in regards to an individual trustee.

In most cases, the virtually suitable trustee structure for a family trust volition exist a newly incorporated proprietary company (Pty Ltd). One of more individuals will be appointed as directors of the trustee company.

A trustee company must issue shares – typically equally fiddling every bit $two (hence the expression "$two company" or "shell company"). Legal advice should be sort on who should merely the shares in the trustee company, as the shareholders can vote the directors in and out of the visitor, and the company legally holds and controls the assets of the trust.

Ideally the shares in the corporate trustee of the trust should be held by a person who is 'safe' – i.e. not likely to go broke and hand control of the trustee visitor to creditors who would and so control the assets of the trust.

At this fourth dimension its also important to consider who the 'appointor' of the family trust is.  An appointor (likewise sometimes called the principal) is defined as a person with the ultimate power of engage and remove trustees.

The appointor of a trust is non involved in the twenty-four hour period-to-day administration of a family trust as this ability and control is given to the trustee(s) or trustee company and its directors. The succession of the appointor (i.east. what happens on their death) is as well best determined at this early stage to ensure ultimate control of the trust passes smoothly to the next generation.

2. Typhoon the trust human action

One time the key decisions around selecting the trustee and appointor of the family unit trust is fabricated, the side by side step is to appoint a lawyer with expertise in trust police force to create the trust act.

Many accountants will provide family unit trust set up services, however they are not themselves drafting the trust deed, they outsource it to a legal certificate provider (i.e. they use a legal template).

Ideally a lawyer should exist involved with overseeing the trust establishment structure with the assistance and communication of an accountant.  Quill Group can provide this service through our legal business Intello Legal.

3. Settle the trust

A key aspect of setting up a family trust is settlement. Settlement of a family trust involves an independent person unrelated to the beneficiaries transferring a settlement sum (typically $ten) to the trustee.

At that place should be a physical transfer of the settlement sum from the settlor to the trustee and this amount should be the first eolith into the bank account when the family trust bank account is set up up (refer Footstep v beneath).

The settlor must mitt over the settlement sum to the trustee to be held on the terms of the trust (as per the trust human action) for the benefit of the beneficiaries.

The trustee must upshot a receipt to record this has occurred. This is the betoken at which the trust is created considering, by executing the trust deed and providing the settled sum:

  1. the settlor has put the trustee in charge of trust property;
  2. the settlor has divers for the trustee which persons fall within the form of beneficiaries, equally stated in the trust human activity; and
  3. the trustee has agreed to act.

The settlor then steps out of the moving picture.

From a legal perspective it is advisable to limit the settlor's role in a trust to the initial establishment of the trust and payment of the settled sum. To avoid the perception that the settlor's annunciation of trust is revocable (i.e. they can make changes to the trust, beneficiaries or even close the trust down), the settlor should be unrelated to the trustee and the beneficiaries of the trust.

At this time the trustee(s) of the family trust (as adamant in Step i above) sign the trust deed to accept the date of trustee(s) of he trust.  Past signing the deed they concur to be jump by the rules contained within the trust deed.

4. Stamping of the trust human activity

Whether a family unit trust deed needs to exist stamped and pay stamp duty or non is dependent on the Country or Territory the trust is established in.

The table below outlines the stamp duty payable for the stamping of a family trust in each State and Territory:

Land / Territory
Stamping Instructions and Costs
NSW Needs to exist stamped by a registered OSR lodger inside iii months from date of execution. $500 ($10 per additional stamped copy).
VIC Needs to be stamped by a registered Duties Online Agent within 30 days from the date of execution. $200 (No charge for additional copies).
ACT Stamping not required. Stamp duty is non payable.
QLD Stamping non required. Postage stamp duty is not payable.
SA Stamp duty is not payable, but deeds may still be stamped 'exempt'.
WA Stamping not required. Postage stamp duty is not payable.
NT Stamping via NT Commission of Taxes within 60 days from the date of execution. $20 ($5 per boosted copy).
TAS Stamping by SRO Tasmania within 90 days from the engagement of execution. $50 (no charge for additional copies).

5. Apply for the ABN and TFN

One time the family trust has been fix, the Australian Business organisation Number (ABN) also as the Tax File Number (TFN) need to be practical for.

These applications are completed online via the Australian Business organization Register (ABR)  and typically completed past an accountant.  If all correct details of the trustee and associated parties are provided, the ABN should be issued instantly with the TFN shortly after.

It tin can all the same take upward to 28 days for the ABR to effect the ABN for a family trust if they need to undertake any transmission checks of the details provided as office of the registration.

five. Ready trust bank business relationship

Nosotros are ofttimes asked how to set a trust business relationship at a bank for a family trust. A bank account should be opened in the proper noun of the trustee (e.one thousand. Trustee Visitor Pty Ltd) as trustee for the family trust.

A banking concern will typically crave the ABN and TFN for the trust as well as a copy or certified copy of the family trust act.  In addition a bank or other institution may also want to see a copy of the constitution, ASIC extract or Certificate of Incorporation for the trustee company.

The settlement sum (as discussed in Stride iii) should exist the kickoff eolith into the bank business relationship of the trust.

An often disregarded attribute of setting up a family trust is choosing the correct bank account.  Trustees of a family trust need to ensure principal banking company account is fit for purpose.  They need to consider what it is going to be used for and who will need admission.

For instance volition it be used to execute investment purchases, or is it going to be an transacting account for a business.  Does the bank account provide a information feed into the Trusts online accounting software like Xero?

Once the bank account is fix upwardly and active the family trust is officially operational and can received additional capital letter via borrowings (including loans from beneficiaries), purchase investments and operate a business organisation.

Benefits of setting up a trust

Is information technology worthwhile setting up a family trust? Earlier setting up a family trust it'southward of import to empathize the benefits and ensure it'due south worthwhile for your family and your state of affairs.

What is a family trust?

A family trust is as well known as a discretionary trust. A trustee (either a person, grouping of people or a company) holds assets on behalf of beneficiaries. A trust deed is a formal legal document that names the parties (trustee(due south) and beneficiaries) and contains the rules on how the trust should be operated.

Family unit trust construction

The following structure diagram illustrates the fundamental parties and relationships in a family trust:

How to set up a family trust structure diagramClick for a larger version

Family unit trust definitions

Term Definition

Trustee

The trustee of a family trust is the legal owner of trust assets and has command of the day to day functioning of the trust including managing the assets. The trustee can exist an individual, group of individuals or a visitor.

Trust Deed

A trust deed is a document that contains the rules of how the trust is to be operated (terms and conditions) as well as the relationships betwixt the parties. A trust deed volition name the trustee, settlor, beneficiaries and appointor (where applicable).

Appointor

The appointor of a family trust is as well sometimes known every bit the main and has ultimate control of the trust. An appointor is a person named in the trust deed who can change or remove the trustee of the trust.

Settlor

The settlor of a family trust creates the trust by providing the trustee with an nugget or assets to be held for the do good of the trust beneficiaries. The settlor should not be a beneficiary of the trust and should be unrelated to the beneficiaries. The role of the settlor is to provide belongings (the settlement sum) to the trustee, sign the trust deed and then have no farther involvement in the trust.

Settlement Sum

The settlement sum is the initial trust property used to create the trust. A settlement sum is usually $10 which is held as cash by the trustee then deposited into the trust banking company account (although information technology can be kept on hand or fifty-fifty stapled to the trust deed). A settlement sum can exist unlike amounts or be other assets or property, however duty might be payable where the settlement sum is NOT cash.  Information technology'due south as well possible to have multiple settlement sums.

Beneficiaries

Beneficiaries are the 'real' owners, or the persons or group of people or entities who benefit from the avails in the trust. Beneficiaries can exist specifically named in the trust human action or be defined through the terms of the trust human action. The trustee decides on the income and capital of the trust to be distributed to the beneficiaries.

When to set upwardly a family unit trust?

Deciding when to use a family trust can be catchy, even so the following are examples of reasons for a family unit trust to be gear up up:

  • To agree a family concern
  • To own family unit assets (including buying property in a trust name)
  • To protect family assets
  • To (legally) minimise tax by sharing income and capital gains across family members
  • Estate planning and management

Another important aspect is looking at how much does it toll to fix up a family trust and comparing the set and ongoing costs against the advantages of the trust.

Family trust advantages and disadvantages

Family Trust Advantages

Family Trust Disadvantages

Nugget Protection:

When someone it at risk of bankruptcy their personal assets are at risk and can be seized past Court Order or sentence and made bachelor to creditors.

When structured correctly (with appropriate legal advice) a trust may provide protection.  This requires the bankrupt private not beingness the appointor or trustee and also if they've not used the trust with the intention of hiding assets from creditors.

 Disputes:

Where a trust builds up a significant amount of assets and becomes and important vehicle belongings a significant portion of a family unit's wealth, the performance of the trust can become a challenge.

Command over the trust and the trusts assets becomes very important, as does succession if the appointor or trustee loses chapters of dies.

Gina Rinehart found this out in regards to her family trust.
Family Trust Tax Benefits:

When a family trust purchases investments (including shares, ETFs, managed funds, property or a business) the trust itself is entitled to the income.

The trustee then decides how the income and capital gains of the trust is to be distributed (given on paper) to the beneficiaries each tax year.

This enables the income from the investments and assets of the trust to be streamed through to beneficiaries in the almost tax effective fashion.

Families need to be conscientious even so if making distributions to small beneficiaries under 18 equally higher tax rates apply on trust distributions paid to minors.

 Tax Losses:

When a trust makes a loss for tax purposes during the financial year that loss stays in the trust.

Revenue enhancement losses typically cannot be distributed meaning the individual beneficiaries can't employ the losses from those investments to reduce their personal income and personal tax bill.

The losses are carried forward notwithstanding and therefore can be applied in future financial years to reduce the taxable income that has to exist distributed.
Passing Down Assets:

A trust is a useful fashion of legally moving assets from one generation to another without triggering capital gains and postage duty.

 Not Office of Estate:

The trustee of a trust is legally separate from the beneficiaries meaning assets held by a trustee do not get assets of the manor when a beneficiary dies.

Still, if the trust owes coin to a deceased casher (beneficiary loan or unpaid nowadays entitlement) the loan owed becomes an estate asset which could create issues for the trust if the loan has to be paid out.
Borrowing:

Banks will typically lend money to a family unit trust and at that place is no restriction on using the assets of the trust equally security for a loan or mortgage.

 Social Security:

Depending on the structure, Centrelink may deem a share of the assets or income of a family unit trust (private trust) as being controlled by an individual an therefore included those avails and income (or a pct of them) as part of the means testing for the age pension.
Protection of Vulnerable Beneficiaries:

When structured correctly a family trust can exist a great tool to protecting vulnerable beneficiaries who may brand unwise spending decisions if they controlled assets in their ain name.

For example, a child or grandchild who is not good with money or has other health or addiction issues.

 Upfront and Ongoing Costs:

A family unit trust has both the upfront cost to fix the trust besides equally ongoing costs to manage the trust including preparing the almanac accounts, revenue enhancement returns and family unit trust distribution minutes.

The amount of ongoing annual accounting fees for a family trust will vary depending on the complexity of assets in the trust likewise every bit the level of service delivered by the accountant.

A trust with basic investment assets such as shares, managed funds or investment properties may toll nether between $ane,500 and $2,500 per year, whereas a larger and more circuitous trust with more than assets may price betwixt $3,000 and $5,000 per year.

In that location are many variables that can affect ongoing accounting fees.

How much does it cost to set up a family unit trust?

Costs involved in setting up a family unit trust include:

  • Legal and tax advice on the best construction including selection of the appointor, trustee, settlor and beneficiaries of family trust
  • Establishment of the corporate trustee for the family unit trust
  • Drafting of the trust human activity
  • Attention to the coming together of the settlor and trustee(s) to settle the trust
  • Training and lodgement of the ABN and TFN applications with the ATO
  • Establishment of the family unit trust depository financial institution account

For case, as of July 2022 the costs for set a family unit trust with a newly incorporated company trustee from Quill Group are as follows:

  • Trustee visitor ready – $1,155*
  • Preparation of the family unit trust deed (under legal instruction) – $363
  • Grooming and lodgement of the ABN and TFN applications with the ATO – $264
  • Total cost of setting up a new family trust with company trustee 2022 – $1,782

*Includes $506 ASIC visitor incorporation fee.  Please note that ASIC indexes this fee and increases information technology each year on 1 July.

Please also note that the above fees are purely for the establishment of the family trust structure – it does non include any legal, accounting or revenue enhancement advice on the recommended structure of the family trust.

How much is needed to set up a family trust?

How much is needed to set upward a family trust is dependent on the needs of the beneficiaries and the purpose of the family trust.

If the family trust is going to be operating a business, enough capital needs to exist injected to commence trading of the concern.

If the family trust is beingness used every bit an asset protection vehicle, it's best to speak to a lawyer to aid determine how the trust can be used to protect assets and provide guidance on the most toll-effective means or doing and then.  The ongoing almanac costs of keeping the family trust agile and lodging tax returns might be a comparatively small amount for the peace of mind a correctly structured family trust may provide.

If the family trust is being set up to legally reduce tax payable on investment income and capital gains, an accountant can provide a strong recommendation based on estimated tax savings besides equally asset protection in comparing to the annual ongoing fees.

The almanac ongoing accounting, tax and ASIC fees relating to a family trust volition be one of many factors in determining how much is needed to set upwardly a family trust, but its non the only gene and competent legal and tax advice should exist sought.

Frequently Asked Questions – FAQs

The following are some common questions relating to setting upwards a family unit trust.

Who can set up a family trust?

A lawyer with expertise in trust police is the all-time placed to legally set upward a family unit trust. An accountant is prohibited from providing a legal service.  The majority of accountants who provide a family trust fix up service to their clients are just facilitating the establishment through a legal document provider who provides legal sign-off on the documents.

Accountants are very well placed to advice on the utilize of a family trust from a taxation perspective, however they may overlook important legal considerations – particularly where there a circuitous or specific legal outcomes that are needed.

Quill Group in conjunction with our legal business concern Intello Legal are uniquely placed to provide comprehensive legal and taxation advice under the one roof.

How to prepare a trust?

The following half-dozen steps can be used to prepare up a family trust:

  1. Choose the trusee
  2. Draft the trust deed
  3. Settle the trust
  4. Postage the family trust deed
  5. Use for the ABN & TFN
  6. Fix family trust bank business relationship

Refer to to a higher place for the detailed steps.

How to ready a trust fund?

The term 'trust fund' is generally used in the United States and most people in Australia employ the term 'trust fund' to describe a family trust / discretionary trust.  To set upwardly a trust fund, refer above for the detailed steps.

It'southward important not to confuse a trust fund with a self-managed super fund (which is also a type of trust!).  If you would like to set up a cocky-managed super fund, please visit our specialist SMSF business Intello Private.

How to set up a trust company?

A trust and company are ii very difficult legal structures. You lot tin set a company or set upwardly a trust – they are unlike.

A trust may (and in many cases should) have a company as the trustee as this provides longevity and administrative efficiency every bit control of a trust tin can exist moved to different persons through transferring the shares (ownership) and directorship (operational command) to the new individual(s) who will control the trust.

Using a company as trustee of a family trust avoids the need to legally modify the ownership and title of assets when control transfers, so there is no need to undertake title transfers of properties, shut and re-open bank accounts in the proper noun of the new trustee(s) or transfer shares or other investments to the new trustee(s).

Setting up a family trust to purchase holding (for buying property in a trust name)

Earlier setting up a family trust to purchase property information technology's important to seek both revenue enhancement and legal advice.

To fix a family unit trust to purchase belongings every bit an investment, delight refer above for the detailed steps.

Land tax when buying property in a trust proper name

Advice should also be sought on the land taxation implications of buying property in a trust name. From ane July 2022, the land revenue enhancement headlines across the country can be summarised as follows:

Country Tax-free Threshold Top Threshold Pinnacle Rate Trust Surcharge Regime Foreign Owner State Tax Surcharge
Act Nada $2,000,000 1.ten% No Yeah
NSW $734,000 $4,488,000 2.00% Aye Yes
NT The Northern Territory does not currently impose land taxation on property owners
QLD $600,000 $x,000,000 2.25% Yes Yeah
SA $450,000 $ane,350,000 2.40% Yes No
TAS $25,000 $350,000 ane.fifty% No No
VIC $250,000 $iii,000,000 ii.25% Yes Yes
WA $300,000 $11,000,000 two.67% No No

States such as New South Wales, South Australia, Tasmania and Victoria have aggregation or group rules when it comes to property buying which can increase the amount of state tax payable.

Typically, land held on trust has not been dragged into these grouping provisions. This is because determining who ultimately controls or benefits from a trust can, in practice, exist very difficult. For this reason, NSW, Victoria and Queensland take introduced a surcharge regime to impose land taxation on trusts at a higher rate.

State Tax-free threshold for land held on trust Surcharge Charge per unit
NSW Nil Rates are unchanged for trusts as the elimination of the tax-gratuitous threshold significantly increases the land taxation burden on trustees
QLD $350,000 0.5%
SA $25,000 0.v% – Surcharge phases out such that the summit charge per unit does not exceed ii.4%
VIC $25,000 0.375% – Surcharge phases out when the total value of the taxable country is betwixt $1.8m and $3m. For land holdings valued over $3m, the surcharge rate is the same as the general rate.

In that location are too additional surcharges applicable in Act, NSW, QLD and Victoria where at that place is a foreign owner of a property.

Country tax and family unit trusts is a complex area so it's essential advisable tax and legal communication is sought before a family unit trust is set up to purchase holding as an investment.

How long does it take to set up a family unit trust?

Provided all parties (i.east. trustees and settlor) are bachelor and amusing to set upwards the family trust, it'due south a quick procedure to legally found the trust. Information technology's possible to fix a family trust within i-2 business days in normal circumstances which includes an allowance for taxation and legal advice to exist sought.

Although there are online providers who volition 'instantly' set upwards the trust, this is purely the provision of documents.  Trusts can be complex structures therefore it's important to take a fiddling time and seek advice prior to setting up a trust in Australia.

A trustee company can be registered instantly with ASIC provided the company registration fee is paid. The trust can be settled on the same day the trustee visitor is incorporated.  Once the trust is settled (through the settlor providing the settlement sum and the settlor and trustee(due south) executing the trust human activity) the trust is legally established and the trustee is able to enter into contracts and acquire avails on behalf of the trust.

Information technology may still take upwardly to 28 days for the ATO to issue an ABN and TFN for the newly established trust, and the trustee likewise needs to make the time to set the bank business relationship of the trust.

How to transfer assets into a trust Australia?

Although its possible to transfer existing assets such as shares, managed funds and property into a family trust, the major drawback is that the modify of legal ownership volition potentially trigger both uppercase gains tax too equally stamp duty.

There may be long-term income tax and asset protection advantages to transfer investments already owned into a family trust and these advantages may outweigh the upfront capital gains and stamp duty costs associated with the transfers.

Once again, transferring assets such every bit belongings into a family trust is a complex area. Legal and tax advice should be sought.

More than questions?

Quill Grouping can assistance you with both the initial gear up of a family trust as well as the ongoing accounting and taxation work for your family unit trust.

In improver to taxation expertise Quill Group has in-business firm legal expertise in family trusts via Intello Legal.

Please make it touch with our team if you have whatever questions regarding the contents of this commodity or the services mentioned.