Family Trusts and Property Settlements

A family trust is usually set up by families who want their assets safeguarded and can provide tax benefits, protection from individual liability, inheritance and investment purposes. The trust deed is the legal agreement that will govern the trust’s operation, binding terms and conditions and role of the parties involved. A trustee manages the fund and has the power to decide which beneficiary/s receives the trust’s net income and capital gain and a settlor acts as a third party that hands over assets to the trustee on behalf of the beneficiary.

Benefits of having a family trust include:

• Asset protection: creditors cannot take your personal assets in the event of a bankruptcy or liquidation
• Protecting vulnerable family members by controlling their assets from unwise spending
• Tax benefits by managing the tax of the family unit
• It can also be secured and easily passed to future generations

However, it also poses disadvantages such as:

• Any income earned by the trust that is not distributed is taxed at the top marginal rate
• Trust cannot allocate tax losses to beneficiaries
• There are costs involved for establishing and maintaining the trust
• Trust disputes may arise

Property settlement is the arrangement of the division of assets and liabilities between separating parties, made with or without the court’s assistance. The Court identifies all property interests of the parties in the relationship and a trust will be a property of the marriage. Even when a party is only a mere discretionary beneficiary, the Court still takes into account as a financial resource of that party when determining the overall property settlement. When reaching a settlement, the Family Court’s decision is heavily influenced by the valuation of assets and liabilities, contributions and future needs. The court looks at the value of assets, liabilities and financial resources of each party and how much each individual contributes. In relation to parenting, it is pivotal to know that non-financial contributions such as being the homemaker holds just as much importance as financial contributions. They look at these things to try and reach an equitable and fair outcome. Consent orders outline your agreement on a property settlement and is given legal effect after court’s approval. Additionally, the Family Law Act 1975 (Cth) permits parties to enter a binding financial agreement which outlines how the property will be divided in which both parties are bound to follow.

If you have any questions about the above, please feel free to get in contact with one of our experienced Family Lawyers at Frank Law on (02) 9688 602 or via frank@franklaw.com.au.

This is not legal advice.