Purpose and benefits of trusts

Published June 2, 2021

Let’s talk about trusts

Following on from the CVW Accounting blog about the Types of trusts in Australia here is information about the purpose and benefits of trusts.

What is a trust – a refresher?

Firstly, let’s relook at what exactly is a trust?

A trust is a relationship where A holds property for the benefit of B. A is known as the trustee and is the legal owner of the property which is held on trust for the beneficiary B. The trustee can be an individual, group of individuals or a company. There can be more than one trustee and there can be more than one beneficiary. Where there is only one beneficiary the trustee and beneficiary must be different if the trust is to be valid.

Purpose of a trust

Secondly, what is the purpose of a trust?

A trust is established to provide legal protection of an asset/s. The type and structure of the trust ensures the asset is allocated according to the wishes of the individual/s who created the trust (the trustor). For example, a trust can be used to protect family assets and assist with tax planning.

Benefits of trusts

Thirdly, what are the benefits of a trust?

Benefits range from protection of assets and tax planning to wealth creation. Below are three benefits of a legal trust.

  1. Protection of assets

An appropriately chosen and established trust can protect both personal and or business assets.

For example, a trust can protect from bankruptcy, accidents, or malpractice. Yes, it can also protect against individuals who marry into the family to obtain money.

Effectively a trust can act as a firewall between personal assets and business lawsuits and/or creditors.

  1. Tax planning

When it comes to minimising tax, a trust can be a very useful tool. This can be great for tax planning for both your business and personal taxes. For example, money earned via business, personal, or investment purposes can be paid to trust beneficiaries. It’s also worth noting, this money is subject to lower marginal tax rates. When factored into your tax planning this could save you and or your business a bundle of tax dollars.

  1. Wealth creation opportunity

A trust can be used to purchase incoming-producing assets. Such assets can also be transferred to a trust. The benefit being the ability to distribute profits tax-effectively and even be reinvested into other assets or investment opportunities.

Of course, there are other benefits of having a trust. If you have questions, please contact us or drop in for a cuppa – we’re happy to help.

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