Investing in a family trust or superannuation

The decision to invest using a family trust or superannuation depends on an individual’s circumstances and should consider their age, number of family members, assessable income, investment options and the need of access to funds.

A family trust is a discretionary trust set up to hold a family’s assets or to conduct a family business and generally established for asset protection and/or tax purposes.

A family trust is generally established by a family member for the benefit of members of the ‘family group’. The family trust has certain tax advantages to elect and make distributions of trust income only to beneficiaries of the trust who are within the ‘family group’. This can achieve favourable tax treatment by ensuring all family members use their income tax ‘tax-free thresholds’, as the trustee is free to distribute trust income to as many beneficiaries as possible, and in proportions that take best advantage of those beneficiaries’ personal marginal tax rates.

A family trust can assist in protecting the family group’s assets from the liabilities of one or more of the family members in the event of bankruptcy or insolvency.

A family trust has many other potential benefits, including avoiding issues such as challenges to the will following a death of a member of the family. There is also no limit to how much money is contributed and invested within a family trust.

Superannuation remains the most tax-advantaged investment vehicle for savings retirement, given the concessional tax rate of 15% while in accumulation phase, then becoming tax-free from age 65 when paying an income, subject to a pension account balance of $1.6m per member.

There are limits to how much you can contribute into superannuation each year. These contributions consist of concessional or pre-tax and non-concessional or post-tax contributions.

Concessional contributions are capped at $25,000 per annum. This is made up of employer paid superannuation guarantee and salary sacrifice. Recent legislative change has enabled some superannuation members to bring forward previous years unused concessional contribution cap.

Non-concessional contributions are capped at $100,000 per annum and consist of personal contributions from after tax income or where no tax deduction is claimed. You can also make a non-concessional contribution of up to three times the annual non-concessional cap in a single year. This is known as the bring forward rule. This is available if you are 64 years of age or younger. You will also forego the next two financial years of non-concessional contributions.

Superannuation accounts are also limited to one account holder. However, you can have up to four members when you establish a self-managed superannuation fund.

The limitation of superannuation is access to funds. You must satisfy a condition of release such as turn age 65, or reach your preservation age (currently 60) and retire. There are other circumstances when you can access super early due to compassionate grounds, severe financial hardship or a terminal medical condition.

Both a family trust and superannuation provide flexibility for managing investment portfolios and family wealth. These structures can be used alongside each other depending on your individual circumstances to provide the best outcome for you and your family.

Engaging the right advisor with tax expertise is essential to choosing the structure that is appropriate to grow your wealth.

For more information on investing in a family trust or superannuation, contact your local William Buck Wealth Advisory specialist.

Investing in a family trust or superannuation

Eben Lok

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