A family trust is a robust choice when setting up a new business opportunity, or if you're looking for an option for a secure structure for your investments.
But before you decide to set up your trust, it's important to be aware of the costs involved, and the steps to take to set it up properly.
Liston Newton Advisory provides guidance and support on setting up your business structure correctly. Read more to see if a family trust is suitable for your business.
How much does it cost to set up a family trust?
Australia enjoys a relatively low cost for establishing a family trust. However, there are no hard and fast rules about what it costs to set up your trust. The cost can vary based on the complexity of your assets and financial goals.
You can expect to pay $1,500 - $2,500 + GST as a minimum to set up a family trust. This includes all necessary legal fees and documentation, plus your state's stamp duty (more on this below).
Cost versus service
Each family is unique, so you may need more specific advice for your situation and how a family trust will best serve your needs. Ultimately, you're paying for the level and quality of service you receive.
Deciding on a DIY option, or going with the cheapest advice, typically won't deliver the best long-term security. It may even result in problems and damages in the long run. You want to ensure that your family, your assets, and your personal wealth are protected. So your family trust must be set up correctly, as it can have lasting impacts on your business.
How to set up a family trust
Here's how to set up a family trust successfully.
1) Determine your fund's trustee(s)
The trustee of your family trust is an important role, as they have the ultimate power of who receives money from the trust. Typically you would nominate yourself as trustee, or have a corporate trustee with yourself acting as company director.
In some rare instances, you may decide to choose a third party to act as your trustee.
In this case, you can choose either:
- A family member
- A professional individual, such as a financial adviser or lawyer
However, they don't necessarily need to be related to your family. In fact, in some circumstances it's best that they not be, in order to provide an objective view.
2) Identify your beneficiaries
Typically, a beneficiary of your family trust can only come from within your family unit. As a beneficiary, the trust deed outlines the extent to which they're entitled to income from the trust.
In the case of a discretionary (or family) trust, you can set these entitlement percentages as you see fit. For a unit (or fixed) trust, these percentages are set out within the trust deed.
3) Draft the trust deed
A trust needs a legally binding deed for it to become active. The deed outlines all the trust arrangements relevant to your family's situation, and the legal proceedings for managing the trust.
4) Settling the family trust
Once the trust deed is drafted, it needs to be settled. This is done by the appointed settlor, typically an individual unrelated to the family.
The settlor is required to provide an initial lump sum to the fund's trustee as a settlement amount. This is usually a small amount, around $10.
5) Signing the trust
After the settlor signs the trust document, the trustee(s) hold a meeting to agree on their appointment to the position. This binds them to the terms of the family trust deed.
6) Stamp duty
The stamp duty you pay on your family trust varies between Australia's states and territories. Some states require the family trust to be stamped by a State Revenue Officer.
- VIC: $200 stamp duty, due within 30 days of execution of the deed. No charge for additional copies.
- NSW: $500 stamp duty, due within 3 months of execution of the deed. $10 charge for each additional stamped copy.
- ACT: Stamp duty is not payable, and no time limit is imposed.
- QLD: Stamp duty is not payable, and no time limit is imposed.
- SA: Stamp duty is not payable, and no time limit is imposed. Deeds may still be considered ‘exempt’ in some circumstances.
- WA: Stamp duty is not payable, and no time limit is imposed.
- NT: $20 stamp duty, due within 60 days of execution of the deed. Each additional stamped copy costs $5.
- TAS: $50 stamp duty, due within 90 days of execution of the deed. There is no charge for additional copies.
7) Applying for an ABN and TFN
An ABN and TFN must be lodged for the trust to become active.
8) Making it official with a bank account
Finally, a bank account needs to be opened for the trust fund. This must be opened in the name of the trustee. The first deposit in the account will be the settlement amount and must be made before any other transactions are undertaken.
Ensuring a family trust is the right structure for your business
A family trust structure is suitable for a family businesses looking to grow. However, there are some other considerations that need to be taken into account:
- A family trust doesn't allow for additional shareholders
- If your profits begin to exceed $500k, the tax-effective planning of a family structure becomes less beneficial. In this case a company structure may be more appropriate
- A family trust cannot gain access to government grants or tax concessions
So if you're thinking about setting up a family trust, asking yourself the following questions can help determine if it's the most suitable structure:
- Will more people join my business?
- Is anyone likely to exit the business?
- Am I intending to sell my business for a capital gain?
- Do I plan on issuing shares to existing employees?
- Do I or my family want the option of taking advantage of tax concessions or government grants in the future?
- Am I comfortable operating under strict financial obligations?
For businesses aiming to grow within their family unit and looking at a business structure that offers tax-effective planning, a family trust may be suitable.