In Episode 4 of the Family Trust Mini Series, I, The Wise Accountant (@hivewise_au) demystify the concept of family trusts, highlighting the potential to provide significant tax advantages—not just for the wealthy, but for everyday Australians as well.
What Is a Family Trust?
A family trust, also known as a discretionary trust, is a legal arrangement where a trustee holds assets on behalf of beneficiaries. This structure offers flexibility in distributing income among beneficiaries, which can lead to tax efficiencies.
How Can a Family Trust Save You Tax?
The key benefit of a family trust lies in its ability to distribute income to beneficiaries in a tax-effective manner. For instance, income can be allocated to family members in lower tax brackets, thereby reducing the overall tax liability.
Additionally, incorporating a "bucket company"—a private company set up to receive trust distributions—can further enhance tax savings. Since companies are taxed at a flat rate of 30%, distributing income to a bucket company can be more tax-efficient than allocating it to individuals in higher tax brackets.
Real-World Impact
Consider a scenario where a family trust generates $100,000 in investment income. By strategically distributing this income among family members and a bucket company, the family could potentially save up to $17,000 in taxes annually.
Is a Family Trust Right for You?
While the benefits are compelling, setting up and managing a family trust involves costs and complexities. It's essential to consult with a qualified accountant or financial advisor to assess whether this strategy aligns with your financial goals and circumstances.
For a more detailed explanation, watch the full video here: The Secret to Saving Tax with Family Trusts
Should you require professional accounting services in Australia, please do not hesitate to contact us.
