As Gold Coast Lawyers who advise clients regarding asset protection and family trusts, we are happy to assist.
Whilst there are some significant advantages using a Family Discretionary Trust, you need to be aware of some of the disadvantages of a Family Trust, and consider whether these might outweigh the advantages for your circumstances.
Losses cannot be distributed
The trust structure cannot distribute capital or revenue losses to its beneficiaries. Hence, when a trust incurs a loss, beneficiaries are not able to offset that loss against any other assessable income such as salary, interest, dividends etc.
The Trustee is the legal owner of trust’s property. This means that the Trustee’s name should appear on all ownership documents, such as shares, managed funds, property etc. However, this ownership of asset is not in their own benefit right, but as a legal owner on behalf of the trust.
Hence, wherever applicable, assets ownership documents should carry the tag “In Trust For”, or ITF or “As Trustee For” ATF. Example for an individual trustee: “Mr R Smith ITF Smith Family Trust”. Example for a company trustee: “R Smith Pty Ltd ATF Smith Family Trust”.
In some instances, the above name cannot be inserted in the ownership documents. Many land title offices do not recognise a trust and will only register title of property in the name of the trustee only, who will be the legal owner of the property. The land titles will not allow the above tag.
In these circumstances, property has to be registered in the name of the Individual Trustee or the company trustee wherever relevant. It is recommend drawing up a separate “declaration of trust” deed for each such asset.
Limited Duration of the Trust
After 80 years of the creation date, or earlier if the trustee decides, the trust will “vest” or cease. This rule does not apply to trusts created in South Australia. The trustee will on “vesting date” compile all the trust’s property and distribute it to all beneficiaries.
Stamp duty payable on creation of trust
A trust is usually established with the Settlor providing the Trustee with a nominal amount of money – Ten Dollars. In such a case as this where the trust is over an unidentified or non-dutiable property, normally a concessional rate of duty or nil duty is applicable.
However, where a trust is created over an identifiable dutiable property, generally full duty is payable calculated on the value of the dutiable property identified in the trust deed. Where the trust contains different types of dutiable property for which different rates of duty apply, the trust instrument will be chargeable with duty as if a separate instrument had been created for each type of dutiable property.