Family trusts vs SMSFs
With major changes to superannuation rules, family trusts had previously been overlooked as a wealth management tool as investors incorrectly believed that the benefits / investments would be largely eroded via a family trust.
While at the same time, there has been a growing perception that superannuation has become overly complex and expensive, especially when compared with the better understood benefits in a family trust.
In fact, the set-up costs for family trusts and SMSFs can be similar, at around $2,200. In terms of running costs, a family trust will probably be cheaper, at around $2,200, while a SMSF will cost around $3,300, due to the fact a family trusts don’t require to be audited each year.
Family trust are no where need as complex as SMSFs, family trusts deed have far fewer restrictions and rules than SMSFs so are therefore simpler to operate. Over the last 5-10 years there has been numerous requirements to amend SMSF trust deeds, whereas a family trust deed may never be amend over its life.
A big attraction of SMSFs is the tax benefits that superannuation offers as well as the flexibility the funds give in managing retirement savings. But the benefits of family trusts are also considerable.
Inter-generational Wealth Planning
For example, in a family trust ownership of assets such as a share portfolio, investment properties or holiday house can continue on uninterrupted even if a family member dies. This is because the family member doesn’t own the asset, the trust does. Consequently, the assets don’t form part of the individual’s estate. Additionally, many family trusts are multi-generational. For most family trusts the vesting date (life cycle, or end date) is normally up to 80 years, however each state may have different vesting date provisions.
Basically this makes family trusts an ideal tool for inter-generational wealth transfer. SMSFs, on the other hand, must be wound up on the death of the last member, which can also raise to high tax issues if beneficiaries are not classed as financial dependents of the SMSF member.
Family Trust Other advantages include:
- Asset protection- against internal and external family members
- No age limits to access funds or investing funds.
- Ability to run a business through the trust and
- Estate planning flexibility for the next generation.
Asset Protection for Family Groups
The asset protection advantages can be very useful. This is because individual beneficiaries do not own the assets of a family trust. Instead, they are owned by the trust and administered and controlled by the trustee of the trust. So if a family member is sued, assets held by the trust may be outside the scope of direct legal action. In a sense creating a fire wall between the each family member’s individual risk’s, be it commercial, investment, and possible extended family court issues.
As long as trusts are used in accordance within the trust deed’s terms, they can be a very flexible and tax-effective way of protect and accelerate a family’s wealth creation and or individuals retirement nest egg’s, particularly in comparison with direct investment in the personal name of individual family members.