Family trusts are still a popular choice when it comes to investing in the future. Many have found that this type of investment has numerous perks, like lower tax rates. If you are looking for the best way to transfer wealth from parents to children, trusts may be the best way to go.
Are Trusts a Permanent Solution?
There is some debate on whether trusts will remain a good investment. The Australian Taxation Office, or ATO, has been threatening to crack down on any payments that are made from a trust to a company in situations where the funds are not actually paid out and remain in the trust. This could lead to problems for thousands of farming operations and small businesses throughout the country.
The ATO is pushing to make these unpaid present entitlements categorised as dividends which would then be taxable at the highest marginal rate. This could lead to serious setbacks for small businesses who rely on funds remaining in their family trusts to use as working capital.
Tax Planning and Your Family Trust
So how do you go about keeping as much money in your family investments as you can while still paying taxes? It can be difficult to determine which family members should own which assets when each person is subject to different tax rates. Putting assets in a trust is a good way to help solve the problem. Once the trust is set up, the income is distributed to family members annually based on their individual tax rates.
Another way to take advantage of trusts is through interest. Rather than paying a bank, a loan can be made to a high-earning family member to use for investments. Then the funds could be paid back to the family trust. The income is subject to lower or no taxes when it is paid out to beneficiaries.
Are Trusts Your Best Bet?
There are many benefits to using a trust over other types of investments. They offer a way to pay lower taxes and keep money within the family. Trusts can help protect assets and make it easier to transfer wealth from one generation to the next. The key is understanding the best way to setup and manage your trust. The experts at Bis Cosgrove are available to answer all your trust questions and help you get started. Contact Brian today to begin investing in your family’s financial wellbeing.
