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Trusts Explained Australia: Reduce Tax + Boost Asset Protection (Inc. Family Trusts Australia) - YouTube
Channel: Kent Cliffe
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effectively the tax saving can be 20 000
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a year in tax if you choose to
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distribute half of your
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income from the business to the no
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income earnings spouse
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absolutely every single investor
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should know about trusts in australia
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now i'm not
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talking about offshore trusts trust fund
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babies
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or the black pool of nominee trusts
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effectively i'm talking about the
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absolutely legal
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normal australian trust whether it be a
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unit trust discretionary trust a family
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trust
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or all the other trusts which i'm going
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to talk about your ears
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should prick up when you hear the words
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asset protection tax planning
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delegation and privacy because if you're
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planning to get financially free
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you need to understand the basics now to
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set yourself up
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for future decisions in this practical
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video i'm going to cover off on some
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cool that's right cool things which
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trusts
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can do to drop your tax boost your asset
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protection
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and set your structures up right to
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maximize future opportunities
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so let's get into trusts this is the
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most important part of the video and as
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i always state i'm not a lawyer i'm not
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an accountant i'm not a financial
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planner
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and this is not any form of financial
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advice
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if you need advice around trusts you
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should speak to one of the three people
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i have just mentioned
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and by going past this point in the
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video you agree
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to be bound by the disclaimer which has
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been linked in the video's description
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what is a trust well effectively a trust
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is a legal agreement
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known as a trust deed where one person
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the trustee
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holds assets for another person the
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beneficiary
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a practical example of this is say for
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example i meet you so hello you
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and i have some shares and effectively
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we enter into a legal agreement called a
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trust deed
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i send you those shares of the trustee
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so effectively you now own those shares
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in your name
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but the legal agreement still states
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that whatever you derive from or
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effectively them they are still mine so
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anytime those shares pay dividends you
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pay that back to me
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and anytime you sell those shares and
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realize the cash
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you then choose to pay that back to me
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this little example
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shows off some scenarios which is
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important to consider around trusts
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first things first is the tax liability
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effectively those dividends and when you
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solo shares
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that is not your tax liability that's
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effectively mine because you've just
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sent the money back to me
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i still have to pay tax the other thing
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is is
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legal liability so for example if you
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get sued those assets aren't actually
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yours i have a legal agreement
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they are still my assets so if someone
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sues you they can't take those assets
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the other thing is is if someone sues me
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effectively you
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hold those assets so you cannot be
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compelled to sell those assets
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and pay that to the person which is
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suing me and the final thing is
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is on any registers of those shares
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effectively it shows your name and not
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mine
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even though i effectively own those
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assets these
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simple concepts create those four core
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components
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of why trusts in australia are so
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important
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effectively it creates a form of asset
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protection it allows for tax planning
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it also means that i have privacy and
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finally it allows me
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to delegate the responsibility of the
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day-to-day operations to you
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with trusts it's also worthwhile
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mentioning tax now
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trusts are a little bit different to a
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company or a person effectively
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trusts aren't taxed what happens is the
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income or
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capital gains from a trust is
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distributed to a beneficiary
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and the tax is then paid in that
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respective person's
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name so this can be handy with tax
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planning because effectively
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you can then choose where and who is
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paying your tax
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there are a few key roles within every
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trusts
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the first role is the trustee and in
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this scenario this is you
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and effectively that is the person which
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holds the assets
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on the benefit to other people this can
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be a natural person and it can also
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be a company the most important person
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in every trust is the appointor and in
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this scenario this would more than
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likely be me
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effectively this gives me the right to
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change the trustee so if i don't like
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what you're doing i can change it to
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another trustee
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and a pointer can also be a company so
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this creates some further flexibility
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the next key person is the beneficiary
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this effectively is a person
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persons or a company which the trustee
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has to
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or at their discretion can pay the
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proceeds of the shares or the dividends
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too
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the final person is a settler and it's a
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bit of an archaic role effectively it's
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the person who gives the initial payment
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into the trust
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to set it up but for the remainder
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operational reasons of the trust they
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can walk away and they do not need to do
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anything
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starting with a trustee their role is to
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effectively interpret the trustees rules
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and regulations
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and execute the day-to-day operations to
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the benefit
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of the beneficiaries the other thing
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which the trustee must do
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is subscribe to my channel because by
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subscribing to my channel
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this would make you a better trustee now
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you would notice that all the roles that
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i've talked about can be a company so
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what is the point
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of using a company for these roles the
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first thing is
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is if it's a company that just is the
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trustee of the trust you can quite
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easily identify
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all of the assets to that trust by
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simply looking up the company's name
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if you need to change the natural person
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that's acting as a trustee
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in a traditional scenario you would need
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to transfer all the assets into the new
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trustee's name
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whereas if that natural person is a
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director of the trustee company and they
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resign and change to another person
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effectively this can be done without
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changing all the assets from person a
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to person b the other reason is the
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appointer or person in control can
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effectively be the shareholder of the
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company and still not director of the
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company
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this would give him extra control on
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ensuring that the director of the
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trustee company does
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exactly what the appointer is looking
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for them to do
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and finally there is further asset
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protection and limited liability reasons
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of using a company
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as trustee of a trust so how do you set
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up a trust well the first thing that
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happens
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is the settler comes along and they
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speak to a solicitor who drafts up a
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trust deed the settler then selects a
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trustee
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and if it's a company trustee they might
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form the company before they execute the
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trust the settler then with the trustee
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and the trustee gives
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money into the trust to form the trust
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deed
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once a trust deed is executed and the
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trust becomes live effectively you can
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now set up
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bank accounts for the trust and the
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trustee also then starts the bookkeeping
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process
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for the trust there are a range of
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different trusts in australia and they
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have some advantages and disadvantages
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i have a list of trust in front of me
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because it's quite long there's a unit
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trust a discretionary or family trust
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it's the same thing
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there is a fixed trust there is a
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self-managed super fund
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there is a testamentary trust there is a
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bear trust there's a hybrid trust and
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there is a charitable trust
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and finally there is a youtube
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subscriber trust and effectively the
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youtube
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subscriber trust is a trust where you
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subscribe to me because you trust me
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that was a tongue twister so you should
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subscribe because i'm really
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trying to get you to subscribe to my
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channel the first type of trust i'm
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going to talk about is a unit trust
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and what makes this one unique is
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effectively the proportion of the assets
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within the trust you own is dictated by
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the amount of units which you own in the
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trust so for example if the trust has
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100 units
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and you own 30 of those effectively you
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own 30 of the assets within the trust so
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when the trust distributes income or
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distributes assets
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you will receive approximately or you
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will receive exactly
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30 of those assets now a little tip
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worth mentioning is if you're planning
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to set up a unit trust like this
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think about what is the most divisible
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number it is not a hundred
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what i like to do is set up my trust
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with 120 units because
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this is a lot more divisible than 100 or
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the other option is if you have a fixed
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investment which is going into that
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and you need to raise money to purchase
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that investment you issue one dollar per
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unit and then for every dollar you put
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into the trust
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you effectively own one unit of that
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trust
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the next trust is a discretionary or
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family trust and what makes this
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different to a unit trust is rather than
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a fixed entitlement the trustee at their
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discretion
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can effectively distribute the income or
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cash from the trust
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to a person which they nominate the next
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trust is a self-managed super fund so
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effectively if you have a super fund and
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decide to manage it yourself you set it
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up as a trust and that's pretty much as
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much detail as i'm going to get into
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that for this video a testamentary trust
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is effectively a trust that
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forms on the death of somebody
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effectively it's used for estate
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planning
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for example if you have children and
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they are not at an age that they can
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manage assets
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you on your death may transfer those
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assets to trust rather
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than directly to the children and
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someone may control their assets on your
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behalf
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a bear trust is where there's a single
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trustee and single beneficiary and the
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trustee has control over the beneficiary
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this type of trust is commonly used when
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lending in a self-managed super fund
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the next one is a hybrid trust it's
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similar to a unit trust in the sense
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that the trustee can determine
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who the distributions go to but it's a
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little bit different in the sense
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that there's separate or different units
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within the trust so
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this allows the trustee to distribute
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income to one person
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and capital gains to another person the
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purpose for this
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is the tax environment for capital gains
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is different
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to income now this is probably one of
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those structures that is
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not about tax planning when you talk to
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the ato but it's probably
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it's probably for tax planning purposes
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as the name suggests a charitable trust
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is for philanthropic endeavors
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the final one is a fixed trust and this
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is similar to a unit trust in the sense
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that you have a fixed
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proportion of any distributions from the
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trust but it's a little bit different to
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a unit trust because a unit trust
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determines the entitlement based on
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units where a fixed trust just says you
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have 30
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so it's just a different way of chopping
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up the distributions
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so what is the advantages of trust for
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every day australians well there are a
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few and i'm going to give you some
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practical examples so first one is say i
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was going to go buy a commercial
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building and that commercial building
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produces income and i'm going to put
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some cash into that trust
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in order to afford the deposit for the
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building what might happen
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because it's a trust and it's separate
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to me the bank will only look through to
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the assets and income of the property
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itself
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and because it's a separate legal entity
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if something goes wrong with that
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commercial investment
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it will not come back to me at a
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personal capacity because it's
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solely quarantined within that trust the
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other advantage is unlike a company
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where i'd be taxed at a full
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capital gains tax rate within the trust
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on sale that money is then comes back to
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me
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and effectively i'm only taxed at my
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marginal tax rate which might mean i get
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a capital gains
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tax benefit the next is litigation in my
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personal capacity so
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say for example i hold all my assets in
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a family trust and i'm sued and i lose
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and effectively that person can claim
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against all my assets
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well first things first they can't claim
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against the family trust assets because
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they're not held by me
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the second thing is is they might be
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able to claim against my income i
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receive from that trust
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but remembering the trustee has the
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discretion to not pay me an income
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until i settle that claim so by setting
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up a family trust and getting sued and
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losing
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effectively it reduces any financial
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losses
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against a successful litigation claim
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against me
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the next is divorce of a child with a
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testamentary trust say your parent and
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you have assets and effectively you want
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to protect those assets for your
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bloodline
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a testamentary trust may stop a spouse
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that is divorcing one of your kids from
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obtaining your assets
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the next one is tax planning through a
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discretionary trust say for example
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you're a high income earner
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with the savings that you're getting
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you're investing and you're investing
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them through a family trust
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that family trust is making returns the
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with those returns you then pay that
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back to your lower income earning spouse
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and effectively
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this means that you won't be paying tax
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in your marginal tax rate
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you'll be paying tax in your sparse's
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marginal tax rate as a small business
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owner a discretionary trust can be handy
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because you can distribute income
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from your business to a lower income
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earning spouse
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this is not big business this can be say
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a small trade-y business
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that's making a hundred and fifty to two
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hundred thousand 000 a year
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with a stay-at-home mother effectively
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the tax saving can be
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20 000 a year in tax if you choose to
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distribute
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half of your income from the business to
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the
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no income earning spouse trust can be
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used in joint ventures where for example
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if i was buying commercial property or i
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was buying a property development deal
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and i only wanted 50
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of the deal i could effectively buy 50
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of 100 units in a trust
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and my business partner could buy the
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other 50 or 100 units
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this is a strong way to protect your
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interests but
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also reduce the amount of exposure to
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any one deal
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as i've alluded to before estate
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planning can be handy with a trust
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because on the death of a person
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effectively the assets don't necessarily
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have to transfer they can stay within
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the trust and effectively the trustee
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takes over control of running those
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assets
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i feel like another useful thing which a
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trust can do is subscribe to my channel
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so when you set up your trust
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set up a youtube account for your trust
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and subscribe to my channel because
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having two subscribers to my channel is
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better than one
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there are some disadvantages of a trust
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which are worth mentioning and the first
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one is
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losses so for example if you make an
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investment and you have a capital loss
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that loss is trapped within the trust
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meaning that you cannot get that tax
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deduction
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against a capital gain unless you have
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another asset within that trust that has
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a capital gain
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almost all states in australia have a
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maximum vesting date for a trust of 80
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years
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meaning that if your trust gets over 80
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years you will need to transfer the
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assets out of trust into the
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beneficiaries names and there may be tax
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implications the final thing is extra
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book work because effectively the assets
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are held separate to the trustee and
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separate to the beneficiary so you just
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need to make sure you are accounting
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for the trust separately so now you know
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the basics of the trust
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practical things that you can do with a
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trust and some of the disadvantages of
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holding a trust so
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until you set up your next trust not
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before you've got advice but
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when you set up your next trust or until
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my next video best of luck
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and goodbye
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