Hello, my name's Satasha Nabananga Bamblet. I'm a proud or
the Order Kerni Whoalbury and a waddery woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on a wondery country, acknowledging the elders, the ancestors and the next generation coming through as this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impactful tomorrow.
Let's get into it.
She's on the Money, She's on the Money.
Hello, and welcome to She's on the Money. The podcast us that helps you master your finances so hard your accountant will be shaking in their boots.
Oh my gosh, you want to make an accountant scared?
Yeah, kind of.
No.
I just want them to be to be proud of you. Proud.
They're going to be proud. So when you hear the words family trust, do you immediately think of rich families in babies finding over their fortunes, you know, the succession or knives out kind of vibe where it's all private Jets secret inheritances.
Yes, that's trust fund, baby, that's.
All we're thinking. Well, we're here to tell you that family trusts aren't just for the mega wealthy, and they're definitely not just a Hollywood plot point.
Oh, that's quite disappointing. So you're going to make it boring for us to make it out every single family trust as a very basic tax structure. Absolutely, how boring.
Let's see if we can make this as boring as possible. But this is the main thing. Is a family trust the right thing for you?
Are you a rich mad dog?
Secretly?
Really, we're going to find out.
I'm excited, and with me is the money expert who's going to help us figure it all out. Victoria Divine, Hello.
I'm very excited to talk about this topic. I used to work in the family wealth space, and like I had exposure to billion dollar families, which is where I learned about family trusts, not because I grew up wealthy. I feel like, I don't know, maybe my parents this would be good. Maybe your parents are doing the same thing. They just wanted really humble down to earth kids. Good luck that didn't happen for me, but they wanted that,
so they didn't tell me about the family wealth. And like, one day, I know I'm going to walk into my parents' house and they say the we were trying to teach you to be humble, but we're actually super rich and you have a family trust set out for you. I'll be like, of course that makes sense.
Of course they're gonna be like, well, it's I was not working, so we'll just give.
You the money.
We'll just give you the money.
No, I don't think that's going to happen. I have asked my dad before, like, hey, where are all the houses that you meant to gift me? He's like, oh, I think they got lost in the mail. Like so sorry about that of the male I know or something? Yeah, Like what dad, I thought that I was born rich?
Yeah? Like okay, jokes over guys, Yeah, like my house.
Do you have this all the time too? All the time? Anyway. I feel like every time we do a call out for episode ideas, this topic always pops up, like literally every single time. It's always in the dams, it's always
in our question boxes. So I guess we're finally delivering what you've been asking for and we are breaking down family trusts, what they are, how they work, whether you actually need one, And as you said back, when you hear family trust, it's super easy to picture I guess dramatic rich families in movies they're fighting over in inheritance. They're probably at a mahogany dining table doing so if there's a maid in a maid's outfit, it's very stereotypical.
But thinking about a dish, Yeah, yeah, yeah, exactly. But here's the thing. Family trusts. They actually can be a very smart financial tool for regular Joe blows, for normal people, not just people who have millions and are super wealthy. But and I guess this is a very big butt. There are some, if not a lot, of rules, risks, and costs that you need to know about before you jump on the bandwagon and go, oh, this might be
right for me. So we're going to go through all of them, and I'm hoping that we can do it in an exciting way. Oh yeah, because honestly, this can be a little bit bland.
So what actually is a family trust?
A family trust, it's a legal structure I'm already designed to hold and manage assets. Yes, So you could think of it like property or some shares or a family business, and it holds it on behalf of a group of people, not necessarily just one person, although it could be one person, and it's usually get these your family.
It's not always money.
I just know it could be assets. I could be assets. And it's also known as a discretionary trust. This is a complicated bit and I wish I could stand up with a whiteboard because when I used to explain this to clients, I'd be like, sit there, if you've got a couple, I'm going to do some drawings on the whiteboard about how the family trust works. And I would like draw this big umbrella and put like your name's up the top and show you how this works. But essentially,
the trust itself doesn't own the assets. You need to think about the trust like a bucket. The bucket just exists. And just because you put something in the bucket, does it mean that the bucket owns the ball?
Oh? No?
Like, so say you own a basketball, beck and then there's a bucket over there, and I say, go put your basketball in the bucket, neat and tidy. Do you still own the basketball? I would like to think so, yeah, But you just put your basketball in the bucket. Yes, the person in charge of this bucket.
So there's a keeper of the bucket, keeper of the bucket, keeper off of the bucket the things inside necessarily.
Which is also the keeper of the trust. They're called the trustee, yes, and then the ogre at the front gate of the bucket. They decide how the income and assets are distributed to the beneficiaries. So once you put in the bucket, we go, Beck. You can't just go pull it out whenever you want. You put it in the bucket, but there's gatekeeper at the door that says, oh, did you want to use your ball? No worries your back. You're on the list. You're on the door list. That's
all good. You can come in, you can use a ball, but put it back up when you're done.
Yep, okay.
So the bucket is like a safe spot. It's guarded, it's looked after. If people were looking into you, Beck and going to she own a basketball, hold on, we're just going to check Beck. I can't see the basketball. Hard to say, I'm the tax man. Beck must not own it because it's over there in the bucket. Right, looks legitimate because that trust acts as an individual when it comes to tax. So then go and look at the bucket as though that bucket was a human being,
and go, well, what's in the bucket? And they'd be like a ball, All right, Well we'll tax that bucket, not Beck, because we just checked Beck. Beck doesn't have a basketball. Yeah yeah, yeah, does that make sense? I feel like it's not making sense.
It does.
Basically, you've got someone who is the decision maker of the trust and they decide how you get access to your basketball. They decide how you can use it, when you can use it, whether you can sell it, whether you can share it with your friends, whether you can rent that basketball out to your friends and make some money. But if you rented it out to your friends and made some money, that has to go back in the bucket because the basketball and all of its assets live in the bucket.
So if the keeper of the bucket, if it's like tax time, so in the bucket is like thirty thousand dollars worth of assets, the tax person will tax the bucket separately as if it's its own entity.
So I'll knock on the door and be like, hello, mister trustee, can we look in your bucket.
And if there's thirty thousand dollars worth of stuff in there, then they'll just tax thirty thousand dollars.
Yes, ah, they're not going to just make it up and pick random numbers.
No, but it doesn't go on to anyone else's.
No, No, it's not tied to you. You're just a beneficiary, so you're not going to be taxed individual. And again I'm not an accountant, so talk to your accountant about how this works. But you're just listed as a beneficiary of that trust. So I mean if you had some money distributed to you, so say, you know, there's thirty thousand dollars in that bucket, and this year you said, hello, mister trustee, I would like some income, and I gave
you five thousand dollars. Now you've got that five thousand dollars. You might be taxed on that. You need to declare it because now it's become personal income instead of income inside the bucket. Understood, But for the time that it lives in its little bucket, it stays in the bucket, and it will only be taxable by you personally if you took it out forever. Okay, So basically the trustees, the decision maker, and then the beneficiaries are the ones
who get the financial benefits. But there's so many bucks in this episode, and this is I think very important. The trustee doesn't just make decisions on a whim. And as I said before, you don't just go no, not can I hear? Just have the money and then they go, let me think about it. They actually have to follow what's called a trust deed, and that's like an instruction
manual or a rule book associated with the trust. And that rule book there's a standard one, so if you open a trust in Australia, it just comes with a standard trusteed and you can edit that rule book when you set it up because you haven't signed anything yet, and I might go, oh, Becky, here are some extra rules on the rule book. And a good example of this is let's say I'm setting up a family trust and I'm your mom, and I go, all right, I've
got some money. I've got my thirty thousand dollars in my trust, and I want beck to benefit from this. And I'm really excited about this because I'm just setting myself up for future wealth. But also I saw this a fair bit when I was managing family wealth. The parents don't want you getting the money if you're being a little bit naughty, right, So like if you're addicted to drugs, if you haven't completed school, if you haven't
done the things that they stipulate. There could be a rule that says, okay, if beck does any of these things, she doesn't get her payouts, and that can go in the trusteed. The trust need starts as all of the basic requirements, nothing shiny, nothing exciting. But because the trust deed is being set up by somebody who wants to control it, they can put whatever they want in it. They could write Beck hasterwear green every day, otherwise she doesn't get her money.
Okay, I can abide by that.
I think that the important thing here is those rules could be as rogue as you want. Historically, I've also seen, and this was a billion dollar family, if the grandkids didn't come to Christmas for two years running, they didn't get their trust distribution.
That oh wow, so you.
Wouldn't get paid. So if you don't come to Christmas, grandparents aren't giving you some cash all all of a sudden.
I love Christmas, yeah, all of a sudden.
But that's a good example of you know, a rule that was put into a trusteed by a family to manage the wealth and manage how it was distributed and just what they wanted. Sure, no judgment, Like literally, you do, you your money, you can distribute it however you want. But I have seen people limit it like this money will be distributed to back when she turns eighteen if she's in university. Sure, if she's not, it's twenty five. So they can make up with their own rules anyway, Okay,
got you. Indeed literally just sets out how the trust can operate, who the beneficiaries are, what the trustee can and can't do. So you're making rules for the gatekeeper as well. So I guess in short, the deed is what keeps the trust fair, legal and running really smoothly.
I am really curious to know, like how to actually set up.
And I'll tell you all about how to set up a trust. Okay, but actually good idea. Let's go to a break and on the flip side, I'm gonna talk to you about how family trust can save you money when done right. What's setting up one takes and what it's going to cost. And we'll get into the needy gritty.
Great, welcome back everyone. We woo.
We're talking about family sure us.
Whom as something very very exciting today family trusts. So before we went to the break, I was wanting to know, like how you set up a trust and how you even take money out or assets out how it were, and also like what goes into running one, Like is it as complicated as it sounds?
Yes and no. So there's a bit of admin involved and every single year a family trust has to have prepared a set of financial statements, just like a company would. So I think one of the best ways to think about a family trust is that it's a business. It doesn't have any products, it doesn't have any services, but it's going to act in isolation over there, sure, and
it's going to hold some assets. So these financials they're going to calculate how much profit the trust made basically all the income earned by the trust and then minust sixpenses and any carryover losses for them like previous years exce.
Feel like if a trust has got shares in it.
For anything, Okay, So in the same way that you and I would sit down and do your tax return and we go beck, how much did you earn this year? All right, did you have any expenses where you can claim, Oh, yeah you did. You did some travel, okay, no worries. Did you do some side hustles? Yeah, yeah you did? All right, what profit did you make? And like, we're just doing like a P and L for the trust in the same way that I would do your tax reporting. But we need to get all of the admin together.
And you know, if last year you had a loss, we would be able to carry that forward. You can do the same thing in a personal trust. Then once the profit has been calculated, same theory I suppose is me calculating how much you earned in total this year, which is hard to do right now. Until June, I can't sit down and be like, oh how much did you make this year? Back we go, well, I know what my annual salary is, but I don't know what
my side hustles did. So like we have to wait until a certain period of the year to be able to calculate this. But once the profit is calculated at the end of the financial year, the trustee gets to work deciding how they're going to split that profit among the beneficiaries, so you know who gets what slice of the pizza. But here is the important bit. The trust itself doesn't pay tax on the profits.
Oh okay, so you do.
The asset owner or the Yeah, so it's living in the bucket, and the bucket is self sufficient. The beneficiaries pay tax, so whatever amount is distributed to each beneficiary. So like as we said before, there's thirty thousand dollars in the bucket and we gave you five thousand dollars, you might not be the only beneficiary, but the profits of that So you could park thirty grand in there.
And then if in one year we looked at it and there's still only thirty thousand dollars, we wouldn't be declaring a profit because the trust just still has the same assets in it. It hasn't made any money. Yeah, But if that thirty thousand dollars was invested and we made one thousand dollars, the ATO would go, oh, how much is in the account or how much is in the trust, And we'd go, well, it's thirty one thousand dollars and the ATO would go, okay, cool, how much
was in there to begin with than dollars? Great, you've made a thousand dollar profit. We're going to tax you on the thousand dollar profit.
Tax everyone who.
So we're going to be taxing the beneficiaries because the profit can't stay in the trust. The profit has to be taken out of the trust and distributed to you. So the thirty thousand dollar asset can be parked over there, But if we made a thousand dollar profit, we need to distribute it. So if you're a beneficiary and you already have a salary for a job, that trust is on top of that, and you'll be taxed at your individual tax rate. Let's say you've got I know what
your job is. You pay thirty two and a half cents every dollar that you earn. Yep. So if I then distributed another one thousand dollars to you this year, Beck, you would be paying thirty two and a half cents in the dollar. So you would be paying three hundred and twenty dollars in tax on that, and you would take the profit home.
Okay, got you?
Hold on backtrack, Beck, I think I need to correct myself. Oh, I think I said that you were paying thirty two and a half cents in the dollar. Yeah, tax, which would have been correct, but the tax rates have just changed so if I'm not wrong for this year, so the twenty twenty four to twenty twenty five tax year, you're actually only paying thirty cents in the dollar. Oh that's nice, which is nice. You've got a little bit of a tax. Yeah, that's good. We love to see it.
So just correcting myself, it wouldn't be three to twenty or to be three hundred.
Okay, gotcha.
Sorry, you know when you're just like, I'm a really hold on, totally chick myself before I wreck myself.
Absolutely, that number is still stuck in my head.
Yeah, thirty two and a half stent. I feel like I've been saying it for literally years. I need to like recorrect the marginal tax rate chart that lives in my brain right, bit.
Hard, But there's so many numbers. It's fair enough. Okay, So the trust doesn't paid tax. No, say, like there are five beneficiaries, and so that one thousand dollar profit is equally distributed to regardless of who owns the asset.
Well it could be. So that's where it gets a little bit thickle. Right. So, and I'm not saying that this is good, but I've seen it a lot. Say, you've got sibling, And your sibling's nineteen and they have their first job. But they're not working very hard because obviously, if they've got a family trust, they're from a really wealthy family. No that's not true, but you know what I mean. Oh yeah, but they're not working that much.
So they actually just did a few casual shifts. They earned twelve thousand dollars this year, Beck, Because they just earnt about a grand a month doing some casual cafe work on a Sunday. Their marginal tax rate is actually nothing because the first eighteen thy two hundred dollars Beck that everyone in Australia earns is actually tax at zero dollars,
so no tax at all. So if your eighteen year old sibling earned twelve grand, they've got a bit of buffer before they hit that eighteen thousand, two hundred dollar limit. So if there's five of you and you're on a marginal tax rate of thirty cents in the dollar, your trustee, who's the person who makes all the decisions, might sit down and be like, Beck, what's your marginal tax rate?
Thirty cents? Okay, Well, to make the most of this money this year, we're going to distribute the whole amount to your little sister because they're not going to pay any tax if we distribute it, but we would lose thirty percent if we gave it to you, Beck. Yeah, so they might make decisions like that. I'm not saying that it's fair and reasonable like that all comes into how family wealth works, but families might choose to distribute
to the person on the lowest tax bracket. So one of the biggest perks of a family trust is that it's flexible, and the flexibility that you get when it comes to tax planning is a family unit. So unlike other structures, a family trust actually lets you allocate income to different family members based on the individual tax situation. Right, Okay, n't sit down and be like, Okay, Beck's income means
she pays thirty cents in the dollar. You know, your mom might be really rich, has big dog job, and he's earning more than one hundred and ninety thousand dollars, so he's paying forty five cents, So it doesn't make a lot of sense to distribute to your dad. But your mum, she doesn't work, Okay, being very stereotypical, Yes, just to paint a picture, right, Like, I'm definitely not saying that this is the norm, but it does paint a very clear picture of how this works. Right, So
your mum, she doesn't work. So if one person in your family is on a lower tax bracket, like a stay at home parent or partner, or a UNI student or maybe a retired parent, you could direct most of the trust's income to them, which then reduces your overall tax bill for the family. So like, if I distributed that one thousand dollars to the dad, we're losing forty
five percent of it. But if mom, who hasn't worked this year, gets the whole thousand dollars, and you know, as a family, we then manage our cash float together. That's the most tax effective decision for my family because you know, maybe what's mine is yours and what's yours
is mine, and we actually have joint finances. But if it's distributed to the mom and we claim it on her tax, we're in the most financially beneficial position, right, And it's a very strategic way to manage income and make sure less of it ends up going into the hands of the tax man. Yeah, very fat I'm not saying that we're trying to be evasive of tax, right, and there are lots of rules that have been put in place to make sure that tax evasion can't happen.
But the key is here. The trustee has to distribute every single dollar of the profit at the end of the financial year. Can't just build up in the trust. You can't just make keeps the money in the trust. So that thousand dollars that we made, if you don't allocate that out to your beneficiaries, you can leave it in the trust if you want, but you will be paying forty five cents tax, so you will be paid
for the most. So like in this situation where we've got beck on thirty percent, you've got that younger sibling that earns basically not much, and then you've got you know, mum who doesn't work. Doesn't make sense to leave the money in the trust. Yeah, no, no, okay, so we distribute it.
Yeah. I just want to quickly check that the profits are definitely different to like, say you've added a for one hundred thousand dollars in assets. Yes, one hundred and it's very different, yes.
Understood, Okay, It's like it's like putting money into your savings account. The ater is not going to be like, oh, Beck, has you know another thousand dollars in a savings account? Will tax her on that? Like they know it's post tax income. Yes, okay, got you?
Okay, So the trust doesn't pay tax, but the beneficiaries due. So would families not just give all their income to the young kids?
Like that makes sense?
Right?
Yeah?
And do you know why I picked the nineteen year old example because they're over the age of eighteen. Yes, because I was hoping that we would get to this topic. But similarly to the way that we've spoken about investing for kids, which we've done episodes on you can find them by looking up, She's on the money investing for kids.
When people are underage, different tax rates apply. So if you gave all of your income from a family trust to your kids, and thought, great, that makes sense because you know, little Johnny he's only fifteen or he's only five, I can distribute all the income from my trust to him because he didn't have any taxable income. And you think that's a really good idea. The government's like, what, Beck, we already thought of this, because we're not going to let you if a tax you can use your wife.
You can use your husband if they you know, a stay at home parents. Sure, that's the line we're going to draw. Sure you try to use your kids. The ATO actually has a very strict rule on miners. Kids under the age of eighteen only have a tax free threshold of get this, four hundred and sixteen dollars a year for income distributed from a trust. Wow, so that thousand dollars isn't going to go that far, is it?
No? True?
No, anything above that is taxed at the top marginal tax rate of forty five cents.
Oh that's unfair. What a these little kids exactly trying to make it money.
So you might go, all right, well, I think kids aren't going to wear a Maybe do need to get a wife after that?
Yeah?
Okay, okay, So I want to know, like the reason is to start up a trust because I'm thinking, if you like, you're already paying tax on it. Okay, So again one of the reasons the set up a trust, let's start with that.
Okay. So asset protection is the number one reason people set up a trust. Assets in a trust they're not technically yours anymore. So like the basketball example, I gave before. We had a bucket over there, and I asked you to put your basketball in the bucket. Technically, you know that's still your basketball. Yeah, I'm not going to withhold the basketball from you, and you know, have an argument over the fact that someone else owns it. Someone else
doesn't own it, but it's now protected. It's in the bucket. Let's pretend it's a magic bucket. Yeah, no one can take it off you. If I like came over to you, sniffed around, was like, do you have a basketball? Looked up your top. Can't see a basketball that does not have a basketball. They're protected. Beck, let's be dramatic. If ever you got sued, if ever you filed for bankruptcy, or you went through a really messy divorce and a lawyer was sniffing around, being like, she got a basketball.
I want to see if I can take her basketball off her and give it to her ex wife. Yeah, they can't see it.
They can't see it.
It's not theirs. I mean, in a court of law, you will have to declare your trust in the sets in your trust. But if you're being sued or if you go bankrupt, like, it is definitely a protected asset.
Okay.
The second thing there is, a trust is very handy if you're planning on passing wells down to your children okay even their kids in the future. So it actually lets you control exactly how and when your assets are distributed. So you remember before I was telling you about a
trusteed just staying out the rule book. So a good example here is instead of I guess, handing everything over in a big chunk and being like, you could have all of my stuff back, you could set it up so that your kids get access to money when they hit certain milestones, so that when they turn eighteen or they turn twenty five and they're buying their first home. It's all about making sure that your hard earned assets stay in the family and are used in a way
that you would want them to be. And that's where you get to create the rules. And I think that that's really fun.
Okay. Is there any other reason?
Yep, So there's a couple. So okay, there's another big one protecting against family disputes. So a trust can actually avoid arguments over things like inheritances or assets because beck, let's face it, stuff gets so messy when more money is involved. More money, more problems literally, you know how we're talking about the Mahogany table and the family talking
about their trustee. We all know that that situation often arises when you know, and I'm not trying to be rude here, but a death in the family happens, they're all fighting over the will and disputing the will and being like, no, that's not what Beck would want. Oh my god, Beck's husband was cheating on here in this and that. Do you know what I mean against real dramatic, real quick, especially when lots of money is involved. Like,
it's actually insane how messy these things can become. But a trusteed that's not a will that's set up much before. That's a full document that is often not able to be contested in the same way that you could be like, I'm going to contest that will, So a trusteed it lays out everything and there's actually no room for confusion
or arguments over who gets what. That's clever, and it can be annoying, like and I'm not saying that all of these things are you know, perfect, and the trust needs set up and then no one argues Like I have sat in many a family meeting, not my family where the great grandparents have set something up and it no longer works for today. You know, they might not be able to access their trust distribution until they're married.
And I mean, if that was set up in the nineteen sixties, you might go, okay, like that kind of makes sense because little Johnny's gonna get married. Johnny might not want to get married in twenty twenty five, and that is very normal now. So sometimes it does cause friction. And then the last thing I want to say is trusts can also have massive benefits if you're running a
small business. They can hold your business assets, they can protect you from personal liabilities, and they can allow profits to be distributed to family members in a way that is tax effective. And my friend, that is why I have a family trust. I say, it's not heaps in it right now. But my businesses are not owned by me. They are owned by my trust. Ah, and I am the beneficiary of my trust.
I see soul beneficiary.
I am the sole beneficiary trust God. Yeah, And that was set up so that I can protect myself so that if anything goes wrong, I go bankrupt, if I get sued, she's on the money is protected. If I go through a messy divorce with Steve, which I hope never happens, because I do genuinely think that even if that happened, we're kind of on the same page. Yes, but I am protected in a way that makes sense. He's not a beneficiary on my trust if you want to know, because it doesn't make sense for him to
be a beneficiary on my trust. Yeah, he has his own full time income. I can't distribute income to him. Yeah, in a way that would make sense. And just really quickly, if you're like going through a divorce, you know how sometimes people are like, oh, you can take half of whatever if something's in a trust, like they can't. So this is where it gets a little bit tricky sticky, right, It depends when the trust was established.
I see.
So if the trust was established prior to you getting into that relationship to marital assets. I'm not a lawyer. You need to talk to your lawyer. This is just how I've seen it fall out for previous clients of mine.
But if you established that trust, well in a relationship, it could be contested regardless of your magadas And I mean, okay, it depends like if you're in a good, solid relationship, maybe you've decided to establish a family trust together, Like you might not just be protecting assets from your partner, but it's also a way that I have used historically for my personal financial advice clients when I had them
to protect their assets. So good example of that young girl client gets a very big inheritance from a grandmother that passed away, talking about a couple of million dollars. She was really worried about how that might come into play if she met someone, got a boyfriend, got a partner, if it was just sitting in her bank account, or these shares were just in her personal name. So she was single at the time she came to me. We did a whole heap of tax planning with her accountant,
with me, We set up a family trust. We got all of that established so that if ever she got into a relationship, that wouldn't come into play. Yeah, so we could say no, sorry, like that's in a family trust. It's actually locked and loaded away from you. You can't get half of her inheritance if you break up with her.
Wow, that's actually very good.
Right, And I feel like sometimes we need those tangible examples to go. Yeah, asset protection what does that even mean? Beck, Like, what is asset protection? No one gets into a relationship being like I adore this person, can't wait for them to screw me over later, Yes, like no one does that. No, but like plan for the worst, expect the best. Exactly, you just got to be safe. And it doesn't mean it doesn't mean that you think the person's dodgy. It's
just you know, you're thinking about yourself. So exactly what are the cons in this case? So there are obviously a few, and it's not all sunshine and roses. When it comes to a family trust, you do have to really think about whether you want one. Some people want
them because they're planning on creating wealth. So I've had clients set them up who have regular jobs, like one seventy grand, the other earn one hundred grand, Like I would say, that's a relatively regular income for a family, And they set it up because their intention was to aggressively invest to retire early. And they were like, actually,
we want to create this into family wealth. We're really committed to this plan, and we want to set up a trust so that when we start investing, we're starting to invest inside that trust for our set protection reasons.
We're happy with all the fees and charges because literally we're sending like sixty percent of our income to these shares, and we don't want to have to transfer the shares once they're established into a trust, because if you transfer something usually you will have to pay stamp duty, so you'll have to pay some taxes or you have to pay some amounts that would be too much, So they'd thought about it. That was their plans, but set up costs a lot above and beyond the financial advice you
might need to get. It can cost anywhere between one thousand and five thousand dollars to set up a family trust, plus then annual admin fees and accounting fees, which I would say on average range between one thousand and three thousand dollars a year. So it's definitely not an option that you go, oh, just set it up, one and done. Like there's ongoing admin costs and expectations.
I see that's where the rich family.
Yeah, that's why they're usually reserved for the wealthier because like, let's be honest, who is spending three thousand dollars a year on an asset if it doesn't super financially benefit you. Yeah, they're a bit complex. So family trusts sign exactly like a little DIY option. You do need an accountant or a lawyer to help you manage it long term, and there are relatively strict rules to follow, so you can't dip in and dip out, like it's not like a
savings account. Over to the side, and then I would say, eighty eero scrutiny like tax man is all over it, like the tax office is all over family trusts to make sure that they're not being used for tax dodging. Oh like, because people might set them up and be like, oh, this is so smart, I'm going to distribute it. They aren't silly, and with the rise of like data matching, they're getting better at calling out like that's a dodgy family trust. Happens all the time, so you do have
to play by the rules. It's not like, oh, set this up and you could be a little bit sneaky, No sir, that's not going to happen.
No. So if you say, for example, have like three thousand dollars, like you go to this thirty I don't know why, I don't know. I pulled that out to shares and then each year you have a thousand dollars profit. Yeah, can you put that thousand dollars profit just back into the shares in your.
You could, but there might be a roundabout way of going about it. So again, I'm not an accountant or like, let's say you left it in the account and said I just want it to be reinvested. It will be taxed at forty five years. The profit will be taxed at for a profit will be Yeah, I might say that, Beck, you pay thirty cents tax, so let's distribute it to you. Yeah, So I'm going to put the money into your account, We're going to do your tax return, we're going to
declare the money. Then we're going to put some of that money back into the trust. Okay, that would make sense because I'm like, you're struggling to know why that would be beneficial if all the money are earning on shares. You know, But are there any times where like it might actually not be worth it, like when it's not like a one size fits all approach. Yeah, Okay, it's definitely not. So I would say that family trusts aren't a good plan if you're just starting out your finance journey.
Like if you're just on the start of your journey or you don't have heaps of assets, Like I would just be like, there is literally no point, and I mean that not in an offensive way. Just why would you spend the money? Yeah, Like it's a waste of money because if the setup costs and the admin costs outweigh the benefits, like for example, there's low or no income generating assets and no need for tax planning, like
why would you do it? And then for people with relatively simple financial situations, so I guess those without kids or dependents at all or major assets, like, there's likely easier ways to manage your money. Yeah, Like it does get a little bit complex. Do you want to go through a couple of situations? Yeah, Placulate examples are the best way to learn. So let's say single, young professional. Let's pretend beck single, you don't have a lot of
investments yet, it's probably not worth it yet. I would say focus on building some wealth first. You're a small business owner, like you've just started your own business, but you're planning on making some bigger profits, Like you're not planning on just you know, doing some local markets and calling it a day. There, like you're planning on, like scaling this business at some point could potentially be worth it, because I would say protecting those assets is really smart,
and then distributing the profits to you could be helpful. Yeah, let's say you've had a couple of kids beck with Jess, and then you break up sorry, and then you meet someone else and they kids and you've become a blended family cute before you broke up with Jess, like you built some wealth with her. Could be really good for protecting your assets.
Yep.
What about like parents with adult kids, It could be really good for parents with adult kids to set up a trust so that they can distribute wealth to their kids before an inheritance happens. A lot of people who have wealth are now looking at it in wanting to see that wealth spent by the younger generation instead of waiting until they're dead. Yeah, and they're kind of like, ah, Beck, I would actually like to see you purchase your first time.
I would actually like to see you, you know, be able to set your kids up instead of waiting for me to die and then getting access to an inheritance. That's a good way to do it. And then like maybe a couple with minimal assets, I would probably say it might not be worth the cost unless they have heaps more to protect. Okay, so I feel like the best thing you can do is probably talk to a finance professional.
Yes, I see. So let's say someone's listened to this full episode and Things of Trust actually might be a good idea for the situation. What's the first step? Like, how do you actually get started? How do you set up a trust? How do you set up a trust?
You talk to your accountant. You can also speak to a financial advisor. And the first thing I want you to do is not just say I want to trust, but can you just tell me if it's worth it for me? Like can you do a pros and cons list for me? Personally? Any good accountant will be like say less Beck, come in for a coffee and we'll do a pros and cons list on the table, and like put your personal situation right in there, like listening to a podcast. Great for base level education, great for
understanding the concept. I cannot tell you what the right situation is for you, but an accountant can. Yes, financial advisor could do the same thing. If you decide to set up a trust, it's very simple. But it's also a lot of signatures. There's a lot of paperwork, and that's fine. I used to actually hate setting up trusts for clients because we're talking eighty plus pages of a trusteed that you need to print or get signed, have them initial so many different Like, it's just an ad
midnightmare for me, not for you. If you're the client, beg, I do all of the printing, I do all of the scanning. I organize that and I put those little sticky labels on that say sign here, and then I give you a coffee and be like, hope your pen's ready, and then you have to sign a heap of times. Okay, it's fine, but the accountant will set that up. They'll register it with the ATO and set it up in the same way that they would have business. So you
need to name your trust. So one piece of advice I have is that if you are ever setting up a family trust, never use your name. Oh so I would never say becksiy Ed's family trust. Okay, Like, if you're telling me that it's for asset protection and you don't want people to find it, don't put on your name. Yeah, you can call it anything, though, and I won't tell you what my client's trust names were, but like there were some funny ones.
Yeah, okay, Like I had a.
Client and it was similar but not this name, but it was like they were a very conservative investor and they called their trust money for bitcoin and it was very funny. Yeah, So things like you can name it anything, just please don't use your name, like you want to separate it from you. Yea, that doesn't mean you don't own it, but like anything, name it a past pet, name it like the name of the street that you grew up on. I don't care. Just don't make it
your family name. And when you're choosing your trust name, you'll also choose a trustee, so it might be a company or it might be an individual, and then you're also going to pick all your beneficiaries. The trusteed needs to be drafted by a lawyer. There are places that do them automatically, so like there are actual trusteed lawyers that basically have a cut paste trusteed. If you want the bare minimum, you can get that. I think we used to pay like four hundred bucks for a trusteed
from one of these companies. But if you want any bells and whistles. You need to sit down with an individual lawyer to get that written up, and then you just need to pay all of the setup costs and register and sign all of your names away and whatnot. And then you might also, you know, open a bank account, but you can't open a bank account until the trust is set up because the quote trust will set up a bank account if you want to own money. I see, Okay,
does that makes sense? So it has to exist to be able to set up a bank account.
I see here I'm catching myself thinking like, ooh, this is not accessible for everyone. But I'm like, oh, if I can't afford it, I probably don't want a family trust or a trust station.
So we don't want to be spending money unnecessarily.
Yes, I see. So what about if you have investments but you don't want the hassle of a family trust?
Now?
Can you transfer these things into the trust later? Yes?
You can, but again there's so many butts in this episode. You can transfer assets, like you could transfer property or shares into a family trust that's already been set up, but you want to consider a few things before you do. So you're going to need to transfer the ownership to move them into the trust. And if you know you want to hold these assets in a trust, it can generally be better to purchase them directly through the trust
from the outset. And this is going to avoid stamp duty and tax because you know how I said before that the trust is seen in the eye of the ATOS an individual. If you're transferring a property from Beck to Beck's trust, the ATO is going to see that as another individual buying it.
Yeah.
See, so if you're transferring it, stamp duty tax payable. If the asset has increased in value, they're going to try and get you on capital gains tax. So you've got a way up whether it's worth it. And I actually had a lot of clients where they would set up a trust and be like I really want to put my property in it, and I'd be like, no, sorry, Like financially that's not viable. Future properties, great, we can put that in the trust, but right now it's not
financially viable. And you just told me that you don't want to be in this house forever, So let's just wait until we sell that property, and then we'll never buy one in your personal name again. We'll buy it in the trust, But we're not going to just incur heaps of tax just to change the names and the ownership structure, Like it might not be worth it. But if you set up the trust and then bought the property.
So for example, Beck, you've decided you're going to be a property investor, know, I'm going to own heaps of investment properties, you might want to set up a trust first so that they're not in your personal name. They're
in your trust from the outset. But you do want to make sure that you're chatting with an expert about transfer costs and workout if it will be worth it, because there were a couple of times where we did do those transfers because it actually ended up being the best thing for the client, Like financially, yeah, it cost them a lot of money, but they got a lot more asset protection, or it put them in a better position, or you know, it might have been a rental property right.
So good example of that from way back when is husband owned an investment property, got married, wife was a stay at home wife, but because he owned the investment property, all of that rental income came directly to him under his tax return. By transferring that property into a trust. We could distribute that profit to his wife and she
didn't work, so that was financially tax beneficial. And we did this lack cost benefit analysis that yes, there's a lot of up cost to doing this, but over the long term, he had no intention of selling the property and always renting it out. I think it was like after eight years or something, it broke even, and then after ten years it was like making a profit. We did have to kind of take a step back to
take a step forward in their wealth creation journey. But you can only work that out if you talk to a professional course.
Yes, I mean you can close the trust.
You can close the trust if you decide it's not working. Beautiful easy. Okay, we've actually covered so much today. I think the biggest thing I've learned is that family trusts aren't just some exclusive tool for the Mega Ridge. Don't stop making the movies about the Mega Ridge.
Yes, Stone, stop making those movies. We need see, you do need a little bit of wealth, probably more than I have right now. But regular families can benefit from them too, but only if it's the right fit for your situation.
Yeah, one hundred percent, And I think importantly, And let's leave it on. These family trusts can be a very smart way to manage your assets or reduce some tax or plan for the future, but they're definitely.
Not a must have item.
I think so many people when they get on too their wealth creation journey or they start listening to the podcast, they're like, I want to do this properly, Like I really want to get my stuff together. I probably should get a family trust because that's legitimate, Like it feels full legit right, might not actually be in your best interests. You don't have to be wealthy to set one up, but you do have to have a very clear reason for doing so.
And if you found this episode helpful, please share it with someone else who might be considering a family trust.
Just gonna state the obvious. If you got this far into the episode and you're not following us and you haven't subscribed to this podcast, my friend, now is the time, because it genuinely helps us so much to keep creating content that's all about putting you in the best possible financial position.
Gorgeous. All right, guys, we'll see you on Friday.
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