[back to Setting Up a Trust]
Setting up a trust can provide significant benefits including:
Your trust can save you significant amounts of tax. For example;
Since 1 April 2000 persons pay income tax at the following rates.
19.5% on income up to $38,000
33% on income above $38,000 but below $60,000
39% on income above $60,000
However, the primary beneficiaries of a trust are usually family members (spouse, children, etc.) Therefore in most situations income can be shared amongst all family members, enabling each person in your family to earn no more than $38,000.
Thus your family can save from 13.5% to 19.5% in the dollar (per person) by avoiding those higher income tax rates of 33% and 39%. We have provided an example of the tax savings possible with a trust
Asset Protection [back to index]
As a business and/or professional person, you naturally wish to protect your valuable assets from business risk. This can often be your family home. Your family trust separates your assets from business risk in the case of business failure, disputes, disagreements and legal actions. It is important to note that by transferring your assets into a trust (whether partially or fully owned), you do not automatically relinquish ownership of those assets. The value of the portion owned is held in the trust as a loan from the initiator (the settlor) of the trust. This loan may be gifted to the trust at a rate of $27,000 per person per 12 months. For large asset values it may take several years for an individual to gift the total debt arising from the transfer of property. This is however the recommended option. There are ways to possibly increase your gifting rate to protect your assets more quickly. Family trusts are often formed to take over ownership of the family home where it is desirable to separate the asset from business risk. NOTE: In the event of IRD scrutiny, you must provide a reason for the formation of your trust. In practical terms this main reason ought to be asset protection. The saving of tax is to be considered an incidental result.
Superannuitants Surcharge Savings [back to index]
If you are retired, your trust can spread your income amongst family members and thus reduce the amount of tax you pay. In addition to the basic income tax rates mentioned above, superannuitants have previously been forced to pay the following surcharges:
25% additional tax on all income over $4,500 per annum
25% additional tax on all income over $6,520 per annum for a married couple
This surcharge meant that many superannuitants paid a total of 58% on income over $38,000. The government has removed this tax and it currently does not apply, however this type of surcharge could be re-introduced by a future government.
Protection Against Future Capital Gains Tax [back to index]
At present there are no death duties or capital gains taxes but in recent years there has been much debate over the possible introduction of such taxes. A trust will protect you against these taxes by transferring valued assets such as property from one family owner/s to the trust. For example;
When a family member dies, the family is not liable for taxes on that owner's property, because the property is owned by the trust.
Asset and Income Testing [back to index]
At present, rest home subsidies and long-term health care are subject to asset testing. If you are retired, forming a trust offers you immense benefits. When you transfer your valuable assets and income into a trust, you are enabled to qualify for these types of care subsidies. The benefits apply not only to the retired members of your family. If you have children studying at tertiary level, putting your assets into a trust may bring your income or asset position beneath the specified threshold. This will allow them to qualify for subsidies they would otherwise be ineligible for.
Matrimonial Property Protection [back to index]
You may wish to protect your assets when considering either marriage or a de facto relationship. If you transfer assets to your own trust prior to entering into marriage or de facto relationship, you can gain additional asset protection.
[Read on to find out the types
of trusts that can be set up or return to the main Trusts page]