Putting a house into a family trust in Australia

In this article, we take a look at how a family trust protects your property and how it can help you buy a new one.

What is a family trust?

The family trust is an estate planning tool that allows you to pass on your assets to beneficiaries after your death. You set up this kind of trust when you want to ensure that certain property or money remains in the hands of a person who will benefit you after your death.

The main benefit of setting up a family trust is that it protects these assets from creditors, ensuring that they are safe no matter what happens after you are gone. It can also be used as a way to make sure that the correct people are receiving their share of the estate after someone dies.

It is a legal arrangement that allows two or more people to avoid paying inheritance tax on property and other assets. You can use this option if you don't want to see your assets going down in value due to inflation or other factors.

What makes a family trust different from other types of trust is its discretionary nature. It basically means that the trustee can make decisions at their discretion on the distribution of trust capital and income to its beneficiaries following the family trust deed.

By transferring assets into a family trust, you can ensure their future financial security by maintaining control over them until the time comes for their distribution.

How to set up a family trust?

There are a lot of documents needed to set up a family trust.

To get started, draft a trust deed, ideally with the help of a lawyer and the assistance of an accountant. It should outline the terms of the trust, how it will be managed, and how the assets will be administered. You must also specify the beneficiaries and what they get from the trust.

Appoint an individual who will be your trustee. It can be a family member, a trusted individual, or a professional who can carry out their obligations in good faith and the best interest of the beneficiaries.

A meeting will be set up for the beneficiaries and the trustee to formally accept and sign the trust deed. It will also be an avenue for the beneficiaries to discuss the Memorandum of Wishes, which establishes the way income and assets of the trust will be distributed.

The trust deed will be settled by placing a sum of money in the trust account through a settlor. Apply for an Australian Business Number (ABN) and Tax File Number (TFN) and open a separate bank account which is necessary to carry out the business of the trust.

And lastly, all documents — especially the trust deed — must be stamped and the stamp duty must be paid as well — the amount of which may differ in each state or territory.

How do you use a family trust for property investment?

The first step is to decide on the type of family trust that suits your needs. There are two ways your family trust can help you with your property investment:

Asset Protection: A family trust designed to protect property from creditors and future liabilities, such as divorce settlements or financial settlements.

The property is owned by a trust, therefore, creditors, banks, and other financial institutions cannot pursue it even if some of the beneficiaries would declare bankruptcy.

It can also be used to create an inheritance for children who don’t qualify for an individual trust. You can pass on your house to your children, even if there are no direct descendants of yours. In this case, the property will be called a tenancy in common and the beneficiary will be able to sell or transfer the property at any time.

Financial Benefit: A family trust provides financial benefits, such as tax advantages and additional control over asset management. You can use it to buy, sell, rent out, or transfer the ownership of a property without any tax or stamp duty implications.

A trust can be used to split profits among beneficiaries. While they don’t necessarily have to get equal shares, it is the discretion of the trustee on how to distribute rental income.

It can also help you benefit from the capital growth on your investment properties. You can make gifts of capital gains tax-free, which means that all gifts made within a family trust are exempt from capital gains tax.

Putting a house into a family trust

If you’ve already set up a family trust, you can simply use it as a vehicle to purchase a house. What if you’ve already purchased properties and you’re looking for asset protection strategies?

You can simply transfer the title of your individually owned property to the trust. It means you will transfer the interest in that property to the trustee, and make them the new legal owner.

To do so, you can gift or sell the property to the family trust. Both have their implications and benefits, and it is up to you to choose what is best for you and your family.

Gifting a property to a family trust is done by signing a gift deed, which establishes the transfer of ownership to the trust without payment. The process might be more complicated if there’s still an outstanding home loan on the property.

Selling the property to a family trust is another way to transfer ownership. The process would be the same as any real estate transaction, except you are the seller and the trustee is the buyer. You can sell it below or at market value, either way, you may still be liable for the capital gains tax.

Whichever process you may go through, it’s best to consult with a professional to help you make the best decision for your circumstances.

Conclusion

A family trust helps you maintain control over your assets so that they cannot be sold or touched by anyone other than those who are entitled to them under the terms of the trust document.

It’s a great tool to help you minimise your liabilities on your property, protect family assets, and share profits among your loved ones.

Everything you own now is the fruit of your hard work. In the event of your demise, you ensure their safety and that it goes to the right hands by putting them in a trust.

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