Disadvantages of a family trust

Disadvantage of operating with a trust structure is that it 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.

Assets held by a family trust?

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. Some advisors recommend drawing up a separate “declaration of trust” deed for each such asset.

Vesting of Trust

After 80 years of the creation date, or earlier if the trustee decides, the trust will “vest” or cease. 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

If 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.

However, if a trust is established over an unidentified or non-dutiable property, as is often the case, normally concessional rate of duty or nil duty is applicable.

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