Family Trusts

Print This Post

Family trusts are often referred to as discretionary trusts. The fund is organized to contain any family valuables or to conduct a family business. Families also set up a trust so that there will be no tax fees. In order for the trust to be tax exempt, the funds can only be divided among the specific family members that are mentioned in the trust. The trust can protect the family assets in case one of the members were to have financial difficulties, such as bankruptcy. Other benefits include the ability to pass down family memorabilia through the ages, and provides an anchor for the family members to use a tax free option. By setting up a family trust fund, issues with wills can be avoided.

The job of the trustee in charge of the fund, is to submit the income as they would like. Those who are accepting the payments are called beneficiaries. The set amount of the income distributed is not set in stone and can vary from year to year. The trust is not responsible for any income tax on the money given to the beneficiaries. However, any funds that are not distributed are taxable. The trustee can submit as much income to as many beneficiaries as they want. The beneficiaries are responsible for any inheritance tax.

Within the family trust, are certain members of the family who qualify for the ‘tax-free threshold’. The current medium is $6,000. The tax free program means that if one of the beneficiaries receives less than $6,000 of the fund then they are not responsible for any taxes. The money given by the trust is considered obtainable income, so if the beneficiary receives any money from another trust the money will be calculated together. Those with obtainable income higher than the others, will have a lower tax-free threshold.

The trustee in charge of the fund is responsible for all taxes, and are calculated at a 45% fixed rate. This is an advantage for the ones on the receiving end. The trustee is usually pressured to divide the funds accordingly before the tax year is over. If there are any beneficiaries who receive money from the fund before they are of age, then the trustee is responsible for any penalty charges. A fair warning to trustees is if any funds are given to someone not included as family on the trust fund, then the maximum amount of charges will be given. When opening a trust fund it is highly recommended that you seek legal advice.