For many years the family trust has been the preferred investment vehicle for people looking to build wealth through property – and rightly so. Family trust or SMSF? This will help answer that question!
However, with self managed super funds now able to borrow to invest in property via limited recourse loans, every property investor who currently has a family trust or who may be considering one needs to take another look at what is the most appropriate structure for their situation.
The following table compares the key differences between using a family trust (also know as a discretionary trust) and a self managed superannuation fund (SMSF):
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The above table is not intended to be an exhaustive list of all the advantages and disadvantages of each structure.
You should highlight the key points in the table that are most important to you, your goals and needs and use those to base you decision.
If you are looking for maximum flexibility with the ability to redraw any money you invest as and when you please, then the family trust is probably the way to go. Alternatively, if you don’t mind locking your investment monies away in the short term, then the SMSF is more likely to suit your needs.
Age is also an important factor when deciding whether a SMSF is for you (and your family). If you are under age 40, then you may want to get one or both of you parents or your partner’s parents involved. This will give you both the unparalleled tax benefits and the ability for some monies to be withdrawn tax free once the older members of the SMSF reach retirement age.
If you are over age 40 then you should be looking at your retirement income strategy in more detail and learning toward the SMSF option.
If you can’t decide – there is nothing stopping you doing both!
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How to set up a family trust
If you’ve been wondering how to set up a family trust correctly, you are not alone. Thousands of new family trusts are set up in Australia each year for a variety of reasons including asset protection, tax optimisation or to act as the legal structure for a business.
The following article from Christina Wolfsbauer of Intello Legal provide a step-by-step guide to setting up a family trust.