Trusts are a legal arrangement in which assets are managed by one party (the trustee) on behalf of another party (the beneficiary). Trusts can be used for a variety of purposes, including asset protection, estate planning, and tax planning.
One of the most common uses of trusts is to minimise the amount of tax that individuals or businesses pay. By placing assets into a trust, the income generated by those assets can be distributed to beneficiaries in a way that minimises tax liabilities. For example, if an individual is in a high tax bracket, they may choose to transfer assets to a trust in the name of their children or other family members who are in a lower tax bracket. This can reduce the amount of tax that the family as a whole pays on that income.
Another advantage of trusts is that they provide a way to protect assets from legal action or creditor claims. By transferring assets to a trust, the individual or business owner is no longer considered the legal owner of those assets, and they are therefore protected from legal action or creditor claims. This can be particularly useful for businesses or individuals who are at risk of being sued or facing other legal challenges.
Trusts can also be used for estate planning purposes. By transferring assets to a trust, individuals can ensure that those assets are distributed according to their wishes after they pass away. This can help to avoid probate and other legal challenges that can arise when a person dies without a proper estate plan in place.
Family business can largely benefit from implementing a trust. If a business owner transfers ownership of the business to a trust in the name of their children, the income generated by the business can be distributed to the children to reduce tax liabilities.
Another example of how trusts can be used is in the case of a rental property. If an individual places a rental property into a trust, the income generated by the property can be distributed to beneficiaries in a way that minimizes tax liabilities. This can be particularly useful if the beneficiaries are in a lower tax bracket than the individual who owns the property.
When utilised correctly, trusts can be a powerful tool for managing assets, reducing tax liabilities, and protecting assets from legal action or creditor claims. To further understand types of trusts and how they can be used, contact us on 1300 225 552 or at jlc@jlcassociates.com.au