Gifting assets to a family trust
Gifting Assets to a Trust or transferring property to a trust helps protect your investments and assets.
Many families like to gift assets directly to members. There is no tax on gifting. We are often asked how much can you gift to a family member ? That’s an entirely personal decision based on how much you have to give . Many gifting cash to family before death is a thoughtful way to assist and distribute assets based on your decisions. Beware that a pensioner and gifting money to family may find their pension is reduced, so be careful.
Another way to control your assets for the future is using a Trust. By placing them in a Trust Environment, you are starting to build a robust estate planning strategy. Let’s explore why you would transfer assets into a Trust or gift money to your Trust! There are many opportunities for this, and Family Trusts still remain a fantastic estate planning vehicle for protecting your family and assets.
To begin with, a Discretionary Family Trust offers significant potential for tax planning. Many of us establish a Family Trust for asset protection and to ensure our assets are correctly passed on to the next generation. Ensure your Deed is well-written, and if you are the controller of your Trust, that in your will and estate instructions, the person appointed after your death to continue the Trust is someone you know will faithfully carry out your wishes.
Your Family Trust should be the hub of your investments, providing flexibility and control over your family assets.
Having now established your Trust, you may wonder how to deposit money into the Trust and what you can use it for.
Fundamentals of a Family Trust
Let’s explore the basics of a family trust first before transferring assets to a Trust. The Trust has a couple of fundamental elements that you should be aware of, but in simple terms, these are:
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- Trust Deed – the rule book of how you run your Trust
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- Settlor – establishes the family’s trust.
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- Trustee – runs the Trust on behalf of the beneficiaries
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- Appointor – appoints the Trustee.
- Beneficiary/ies – family who benefits from the Trust.
- Trust Fund – gifting assets to a Family Trust or creating a loan
How do I transfer money into my family trust?
There are several main ways to add money to your trust:
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- Gifting assets or money to a Family Trust from your funds.
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2. A Loan from you to the trust – repayable, defined or non-defined
Either method works, but gifting assets to your Family Trust is better for estate planning and asset protection. Some do a combination of both!
When transferring or gifting assets to your Trust, ensure you have checked all the necessary legal boxes. This will mean that the Family Trust Assets are secure and recognised as owned by the family trust. The Trustee should document all property and loan transfers. Minutes should explain why and how it is a gift to the Trust. Assets transferred to your Trust will then be allocated to the Trust’s corpus. If you need to document your property transfer, seek a qualified lawyer we recommend Brett Hayton from Hayton Kosky Lawyers to ensure the title is legally transferred. His article highlights why estate planning is important from a legal perspective and can be accessed here.
A Trust is a legal entity. However, some registries won’t recognise the Trust but require the Trustee to be the registered owner on behalf of the Trust.
Beware, gifting assets to a Family Trust may not be easy to get back
Two important points here you should consider when gifting assets to a Trust or money deposited into a Trust
Transferring an Asset or loan to the Trust as a gift will help you achieve your estate planning needs. The asset or money is gifted, and it forms part of the capital or corpus of the Trust. That means it becomes the discretion of the Trustee as to how it is repaid or who receives the capital if the Trust is wound up.
In simple terms, your Trust now owns the asset gifted in, and the only way to get it back is to either make a specific distribution as capital or vest (i.e. wind up) the Trust. In most cases, upon vesting of the Trust, the capital would be distributable to the default beneficiaries or at the Trustees’ discretion. You should consult your Trust Deed to understand how it would work for your circumstances.
Point 2 concerns the trust’s ability to enter into a Gift and loan-back arrangement. Again, this requires a well-documented agreement and actual money changing hands. If you are considering this, be careful.
Loaning money to your Trust!
Loaning money to your Trust will allow you to request that you recall the money you have lent to the Trust. Repayments will depend upon the Trust’s ability to pay and several other factors. A loan agreement can be beneficial, and many individuals draw up an agreement for certainty and estate planning purposes.
The Trustee should repay the loan if requested. When no loan agreement is in place, the trustee should record the loan for a minute to ensure documentation and protection to the loan holder. The accountant should record it on the Trust’s balance sheet. As a trustee or lender, you can request that interest be charged, but this again depends on what you have agreed to with the trust and the lender.
Watch out for Div 7a loans from a Trust to a company. If the amount is not paid or documented, then there may be a tax issue that needs addressing.
Gifting assets to a Family Trust and CGT!
Any change of ownership could trigger a CGT event. There may be Capital Gains implications, and we can assist you here. Tread carefully and allow us to help you work through the impact of the potential transfer. For some, the realisation of capital gains is part of the process and can be softened with superannuation strategies and any brought forward capital losses. For others, it is seen as an opportunity to reset the cost base in a new tax vehicle.
A Family Trust can help protect you and your family’s assets. Many families gift assets to a Family Trust. This means you forego ownership, and the asset forms part of the Trust’s capital or corpus. A Trust can offer protection over time. Additionally, your Family Trust protects your assets in the event of unforeseen circumstances. These include Creditors, angry family members, and newlywed children. The Trust protects your Assets, as these individuals can no longer claim them, as the Trust now owns them.
A Family Trust mechanism allows you, as the appointed person, to establish control. The appointed person can fire and hire the Trustee, effectively controlling the Trust.
Upon your death, your executor acts on your behalf. The great thing is that the Trust continues to the next generation, as detailed in the Trust Deed. It is worth noting that the Trust will continue until the trust vesting day, typically 80 years after its establishment.
There are Social Security opportunities. Gifting can, in certain circumstances, be beneficial for social security planning, but it’s essential to seek advice. Talk to Aimee at Vista Financial, who can assist you here!
Get Help
Every person’s circumstances are different. Therefore, we have outlined above a simplified summary of how the trust and your money operate. We recommend seeking professional advice before implementing any strategy. We are happy to assist you if you need help in this area.
Please reach out to Geoff if you would like to discuss your circumstances. Phone 95979966
