You may need a refresher on why you set up your family trust in the first place.

It was probably because family trusts offer asset protection and income tax advantages.

Asset protection benefits

Because none of the beneficiaries own the trust assets and their only right is to be considered by the trustee, it is more difficult for someone to argue that the assets of the trust belong to any one of the beneficiaries.

This means that if a beneficiary is sued, then the assets in the family trust may not be available to satisfy any claims by creditors against that beneficiary.

Tax benefits

Family trusts can also offer a lot of flexibility for income tax.

In essence, trusts are flow-through vehicles for tax purposes, which means the income earned each year by investing the trust assets always needs to be distributed to beneficiaries and each beneficiary gets taxed on the income they receive from the trust at their own marginal tax rate.

Each year the trustee can choose which of the beneficiaries should receive the income earned by the trust, which allows them the option of allocating income to beneficiaries who have lower tax rates. For tailored advice on family trust succession, contact us for an estate planning consultation.