Segue News

Keeping assets in the family… Best achieved through a family trust or an individually managed super fund (IMSF)?

ENJOYING a comfortable retirement is one of the great aims of life: a time to laze about and at leisure make the hard decisions about where to travel next or which up-market restaurant to check out. The tough bit is choosing the best way to arrive at this nirvana; whether by an Individually Managed Super Fund (also known as SMSF’s) or the use of tax-advantaged Family Trusts.

Individually Managed Superannuation Funds have many benefits, including lower tax rates in accumulation phase and no tax in pension phase and flexibility.

Individually Manager Super Funds, however, have contribution and borrowing limits, and some restrictions on where you can invest, hence the significant income tax benefits. Strategic planning can eliminate both capital gains and income tax after age 55, providing an excellent means for strategically gearing property acquisitions.

Small business, for example, might hold both the shop premises and the warehouse in their Individually Managed Super Fund with both income stream and capital gains minimised or eliminated, depending on the age of the member. Note: this strategy must be managed to ensure protection for the other assets in the event of a claim (in additional to Insurance). Use of reserves in these funds provide yet another means of flexibility and the potential for further tax planning. Hence the name Individually Managed Super Funds.

Due to the limitations of contributions caps since July 2008 it will probably be necessary to combine family trusts and Super to grow and protect your wealth. Setting up either a family trust or individually managed super fund is a fairly straightforward process.

A family trust, like the individually managed Super Fund, starts with a trust deed, a legal document that provides the rules and details on how the trust will work and who will broadly be the beneficiaries/members.

Like an individually managed super fund, a family trust should only be set up where there is enough money to justify its existence and the cost of running it as it will involve such duties as the preparation of separate tax returns and the paperwork involved in keeping trust assets separate from any personally owned investments.

When a trust is established, other family members can be included as beneficiaries (in the case of the family trust, and members (limited to 4) in the case of the super fund.

Beneficiaries/Members of both family trusts and Individually Managed Super Funds must realise that the provisions of the trust deed stand independently from the intentions of a personal WILL. Neither the super fund nor the family trust assets form part of your estate. However, an Individually Managed Super Fund has the greater advantage, with the ability to have its own SMSF WILL.

On balance, family trusts and superannuation both rate highly as a form of asset protection because the protection, with certain limitations, is enshrined in government policy as reflected in the bankruptcy legislation.

A combination of the two can be an ideal financial structure where contribution caps preclude having all your investments in super.