Family trusts have come back onto the radar of SMSFs following the recent budget update announcements that limit the amount of money that can be contributed to a super fund and still receive preferential tax treatment.
Should the Senate approve the changes, from 1 July 2017, SMSF will be capped at $1.6 million in the super fund with its favourable tax treatment, including the tax-free status of investments in once in the pension phase. These changes have put family trusts into the spotlight.
Whilst superannuation may be seen as the best tax environment in which to hold your assets, particularly when you are near or at preservation age, if you are heading towards or have even surpassed the proposed $1.6 million pension limit, decisions need to be made. Assets should be allocated appropriately to another structure that works, and sometimes that structure will be a family trust.
Whilst family trusts may not be for everyone, the benefits and flexibility of a family trust can be a tax effective structure in which to hold investments alongside your SMSF. Given the tax benefits of the super system, it’s not often that it makes good financial sense to use a family trust structure over an SMSF, unless you are a long way from preservation age.
The appropriateness of a family trust needs to be assessed on a case-bycase basis, carefully taking into account the costs and benefits of establishment and maintenance. Family trusts can be better suited where your portfolio is of a reasonable size and you are at a higher marginal tax rate, and can be particularly effective where there is a family group including parents, children, and other closely-related parties.
Source – AMP
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