Benefits of a Family (Discretionary) Trust

Belinda Thalakada, Customer Service

Recently, the Australian Financial Review published a useful article on the benefits of establishing a Discretionary Trust — particularly in light of the pending restrictions on access to assets and capital in SMSFs.  

The upcoming restrictions include:

•          a further decrease in SMSF concessional contribution limits from $50,000 to $25,000 in July 2012 for people over 50 who have accumulated more than $500,000 in super;
•          the impending increase to the preservation age which prevents people from retrieving any super from their SMSF until they turn a certain age. This age will be bumped up from 55 to 60 by 2016.

So what does this mean for people with SMSFs? Currently, when you turn 50, you are able to begin a transition-to-retirement income stream. The stream can pay you 10 per cent of your total super each year until you retire.  But by 2016, most SMSF members will have to wait an extra  5 years before they can start their transition-to-retirement phase.

As a direct result of these changes, the article indicates that establishing Discretionary Trusts in conjunction with an SMSF is becoming more and more common. This is because the Discretionary Trust provides people with a tax beneficial option that offers more financial flexibility than superannuation funds. (Though the article is quick to point out that a Discretionary (Family) Trust is not as tax advantageous as an SMSF.) Having an additional trust allows people to access their savings if they want to enter into early retirement.

In the article, Tony Greco, Senior Tax Advisor with National Institute of Accounting, claims that Discretionary Trusts give people access to funds which have been accumulated in much the same way as super. He says, “if you can’t get access to your super until you are 60, then you will need to have some assets outside super”. Discretionary (Family) Trusts also have the added benefit of being able to develop your investment in a less complex and well planned structure — enabling you to spread the “tax burden” associated with the trust’s wealth over generations of beneficiaries.

For the full article, click here.

·         For more information on Cleardocs Discretionary Trusts click here.

·         For a 2 part guide to understanding the features and benefits of Cleardocs Discretionary (Family) you can read Part 1 and Part 2

·         Legal queries about our trusts? Check out the FALQ for Discretionary Trusts here

·         Establish a Cleardocs Discretionary Trust in just fifteen minutes here