Building Wealth for Future Generations: How Trusts Can Help Your Family Thrive

Creating wealth is one thing, but ensuring it benefits your family for generations is another. In Australia, more families are turning to trusts as a way to build, protect, and transfer wealth effectively. Trusts can help ensure that your children, grandchildren, and even great-grandchildren inherit more than just memories— they inherit financial stability and opportunities.

What is a Trust?

A trust is a legal arrangement where a trustee holds assets on behalf of beneficiaries. The trustee has a duty to manage these assets according to the trust’s terms and the best interests of the beneficiaries. Trusts are versatile and can be tailored to meet specific family needs, such as income distribution, tax efficiency, and asset protection.

How Trusts Work in Australia

There are several types of trusts commonly used for estate and wealth planning in Australia:

• Discretionary Trusts: The most flexible option, allowing trustees to decide how income and assets are distributed among beneficiaries. This flexibility helps minimise tax by distributing income to family members in lower tax brackets.
• Family Trusts: Similar to discretionary trusts but typically set up with the family’s best interests in mind. They offer asset protection and can be used to manage family-owned assets, such as property or shares.
• Unit Trusts: Beneficiaries hold a fixed proportion of the trust’s assets, making it less flexible than a discretionary trust but ideal for joint ventures or partnerships.
• Testamentary Trusts: Created through a will and come into effect upon death. They can offer tax benefits to minors by distributing income at adult tax rates rather than at punitive penalty rates.

Real-Life Examples of How Trusts Can Work

Here are some examples of how trusts can work to your advantage:

1. Distributing Income to Lower Tax Brackets: Suppose you have a discretionary trust with $100,000 in rental income. You can distribute part of this income to your children (who might have little or no other income) and your spouse to ensure everyone stays within lower tax brackets. This strategy could save thousands of dollars in tax each year.
2. Protecting Assets from Creditors: John is a successful business owner, but he’s worried about what would happen to his family assets if his business were sued. By placing his investment property into a family trust, John ensures the property is protected from creditors, as it’s not held in his name.
3. Managing Inheritance for Minors: Jane and Tom want to ensure that if something happens to them, their estate will be managed sensibly for their young children. They set up a testamentary trust in their will. The trust will manage the children’s inheritance until they reach an age where they can handle it responsibly, distributing income for their education and living expenses along the way.

Benefits of Using Trusts in Australia

• Tax Efficiency: Trusts can help manage and minimise tax by distributing income to beneficiaries in a way that optimises their tax outcomes. For example, distributing income to adult beneficiaries on low incomes can significantly reduce the overall family tax burden.
• Asset Protection: Trusts provide a layer of separation between personal assets and business risks, making them a powerful tool for business owners or those in high-risk professions.
• Estate Planning: Trusts can help ensure that assets are passed on according to your wishes, providing for children, grandchildren, or other beneficiaries. They can also help avoid family disputes over the estate.
• Continuity Across Generations: Trusts can be designed to benefit multiple generations, ensuring that your wealth is preserved and passed on according to your family’s long-term goals.