Also known as discretionary trusts, these legal structures offer a strategic approach to tax planning and managing and protecting assets while delivering potential tax benefits. This article aims to explore the concept of family trusts, their historical roots, their benefits, and why consulting with a professional accountant is pivotal in this process.
The Origins of Family Trusts
The history of family trusts stretches back to feudal England. Knights would entrust their estates to a confidant, who as the trustee was tasked to manage the estate for the knight's family, the beneficiaries. This historical setup ensured that the property was protected and passed onto the next generation in the patriarchal society of the time, where daughters couldn't inherit property directly.
Today, this structure has evolved and is instrumental in tax planning, asset protection, and wealth distribution. Trusts are particularly beneficial for managing a diverse range of financial scenarios and safeguarding against potential risks.
Why Form a Family Trust?
Family trusts are formed for various compelling reasons:
1. Distribution of Profits: Family trusts offer flexibility in income distribution, allowing trustees to allocate the trust's income among beneficiaries strategically. This approach can minimize the overall tax liability, especially when distributing income to those in lower tax brackets.
2. Asset Protection: Assets within a family trust are generally safeguarded from creditors in the event of bankruptcy, business failures, or legal claims. This feature makes family trusts an attractive tool for business owners, professionals exposed to litigation, or anyone wanting to protect their wealth.
3. Succession Planning: Family trusts offer a simplified way of passing assets onto future generations without triggering Capital Gains Tax (CGT) or stamp duty. Trusts can carry on in perpetuity, providing a controlled mechanism to create a lasting financial legacy.